Axelsen crashes to Shi in Malaysia Open badminton semi-finals
Having secured back-to-back titles last year, the lanky top-seeded Dane came into this tournament a hot favourite.
But Axelsen failed to qualify for the finals after a gruelling 21-12, 19-21, 21-17 defeat to the world number six.
"I did everything I could mentally and physically," the 30-year-old Dane told reporters.
"Credit to Yuqi, he was the better player."
Shi, 27, sealed the first game thanks to some excellent net play that trapped Axelsen.
But Axelsen came back for the second game fired-up, celebrating his points animatedly with fist pumps and hand raised in the air.
The Dane executed some strong defence to force a third game despite hurting his right knee during a rally, taking an early lead in the decider before some costly errors proved fatal.
Shi calmly reverted to his crafty net play and secured an upset win with a perfect lobbed return beyond the Dane's reach.
It was Shi's second triumph in three meetings with Axelsen, having also beaten him at the 2023 World Tour Finals group stage match last December.
Shi next meets Denmark's Anders Antonsen, who ousted Taiwan's Lin Chun-yi 21-16, 21-7 in the second semi-final, for the title.