Verstappen’s bid to win a 10th straight race for the second time in less than 12 months ended after he suffered a car fire early in Sunday’s race.
After cantering to wins in the opening two races of the season, Verstappen was a red-hot favourite to go back-to-back after winning at Albert Park for the first time last year.
The three-time defending world champion started in pole position but Sainz, who qualified second, overtook him on the second lap.
Verstappen then began complaining on team radio about “losing the car”.
Soon afterwards, smoke appeared at the rear of the 26-year-old’s car and he was forced into the pits on lap three, with no hope of a return.
“My right rear brake basically stuck on from when the lights went off,” Verstappen said.
“The temperatures [in the car] just kept on increasing until [reaching] the point that it caught fire.
“They [mechanics] could see what was going on, but they don’t know what what caused it.
“We had a lot of good races in a row. I knew that the day would come when [I would] end up having a retirement, and unfortunately that day was today.”
It continues a mixed relationship with Australia for Verstappen, who was forced to retire in the 2022 edition.
Verstappen had won nine straight races, dating back to the Japanese Grand Prix last September.
Sainz was the last driver, in Singapore last September, other than Verstappen to win an F1 race.
Victory at Albert Park would have taken Verstappen level with his own record, set with his 10 straight wins from Miami to Monza last year.
Verstappen won 19 races last season - the most in F1 history - on his way to a third straight title to completely dominate the rest of the field.
The Dutchman had also converted his last 18 poles into a race win.
Verstappen wasn’t the only big name to suffer mechanical issues, with seven-time world champion Lewis Hamilton forced to the back of the field on lap 17.
Hamilton, who started 11th after his worst qualifying session at Albert Park since 2010, headed to the garage in another disappointing race in his last season with Mercedes before his switch to Ferrari next year.
It was the first time Verstappen and Hamilton - F1′s two most successful drivers of the past decade - had withdrawn from the same race due to mechanical failures.
Australian veteran Daniel Ricciardo, who missed last year’s Melbourne race, finished 12th with his new team, RB.