Defending champion Novak Djokovic and two-time winner Roger Federer both advanced, but Nadal saw an 11-match winning streak snapped. Nadal had won back-to-back clay-court championships in Monte Carlo and Barcelona.
Verdasco had lost all 13 of his previous matches against Nadal -- including a setback in the Barcelona semifinals two weeks ago -- before pulling out a 6-3, 3-6, 7-5 stunner. The match included 13 service breaks, seven by Verdasco.
Djokovic ousted Stan Wawrinka 7-6 (7-5), 6-4 and Federer cruised past Richard Gasquet 6-3, 6-2. A victory for Federer this week would move him past Nadal into the No. 2 spot in the world rankings behind Djokovic.
Federer will meet David Ferrer in the quarterfinals after Ferrer ousted Nicolas Almagro 7-6 (7-5), 3-6, 7-6 (10-8) in a 2 hour, 53 minute, match.
Also Thursday, Alexandr Dolgopolov surprised fourth-seeded Jo-Wilfried Tsonga 7-5, 3-6, 7-6 (7-2). Tomas Berdych crushed Gael Monfils 6-1, 6-1 and Juan Martin del Potro defeated Marin Cilic 6-2, 6-4.