Djokovic, a two-time winner in the Principality in 2013 and 2015, was broken eight times before going down 4-6, 7-5, 6-4 on the Cote d’Azur.
The Serbian led by a set and a break against Musetti, was overpowered by the Italian youngster who fought back in a scrappy second set and then prevailed in the decider after rain interrupted the match for an hour.