Serbian world number one Djokovic had won his last 15 matches at the venue, his last 38 under a roof and has been untouchable since losing to Federer in Cincinnati in August.
But with his timing well off, he was brushed aside 7-5 6-2 by the 17-times grand slam champion who is already through to the semi-finals, probably as winner of the Stan Smith Group, with another round-robin match still to come.
Federer fully expects Djokovic to recover from the jolting defeat, however, and he may well have to beat him again at the weekend if he is to claim a seventh title at the ATP's season-ending showpiece event.
"Still to me Novak is the favorite for the tournament," Federer told reporters. "Heavy favourite in the (Tomas) Berdych match (on Thursday), in my opinion.
"Then he should make his way to the semis somehow. I don't know exactly what he needs. And he'll be the favourite in that probably, too, with the year he's had.
"He's far from gone. The way I know Novak, he's going to find a way to be tougher to beat from now on."
Federer has now won 50 matches at the tournament, although he was said he was not expecting to beat Djokovic—an odd admission from a player who now leads their head-to-head 22-21.
"I wouldn't have picked it maybe before the tournament, you know, just because of his really good record indoors, the year he's had," he said of the Serb who has won three of the year's four grand slams together with Six Masters Series titles.
Federer even managed to strike a blow before a ball was struck on Tuesday, sitting on the court-side chair which already had Djokovic's towel draped on it.
Asked about it afterwards, he joked: "I'm not going to be pushed by a towel. I sat on that chair when I walked out against Tomas. I said, I'd like to sit here again."
Djokovic also saw the funny side of it.
"I don't think it was a tactical approach," he said. "Messing me around before even the first ball."
Federer has two round-robin wins already with Djokovic and Kei Nishikori on one each. Djokovic will need to beat winless Tomas Berdych on Thursday to guarantee a semi-final place. —Reuters
