Following his very first serve of the match, against Australia's Jordan Thompson, the 37-year-old Murray's hip and right leg seemed to give way.
He served out the game, virtually on one leg, and after dropping the first two games he held for 1-2
Murray, who competes with a metal hip and has struggled with an ankle injury and a back issue this year, had a medical time-out at the changeover.
The Scot, twice a Wimbledon champion and five times a Queen's winner, came out for the fourth game but was unable to chase down anything out of reach and rolled in gentle first serves.
Murray, who has plummeted to 129th in the world rankings, eventually withdrew at 4-1 down with the official explanation a back injury.
The former world number one has spoken of wanting to retire either after Wimbledon or the Paris Olympics, with Murray a two-time gold medallist.
But Wednesday's injury could scupper the three-time Grand Slam winner's plans, with Wimbledon starting in under a fortnight.
"I could see he had a problem in the warm-up and then his first serve," said Thompson. "I thought, 'hit the ball in and make him run'.
"I actually learned that from him, when he was playing, and if a guy was hurt or cramping or something, he'd always use a drop shot or just try and take it up the line."
The 30-year-old added: "I learned a lot of things watching him play, so it's an honour to share the court with him, but it's just sad that it ended like that."
Korda knocks out Dimitrov
Meanwhile, Sebastian Korda maintained his impressive start to the grass-court season as he defeated former champion Grigor Dimitrov, the third seed, with a hard-fought win.
The 23-year-old American advanced into the last eight with a 6-4, 3-6, 7-5 victory over his Bulgarian opponent, who took the Queen's title back in 2014.
"It was a big struggle," said Korda. "We were both serving well and waiting for our chances and there weren't many.
"But when they came, I tried to take them," added Korda, beaten in last week's final at 's-Hertogenbosch -- another warm-up event for Wimbledon -- by Australia's Alex De Minaur.
Korda will next play Rinky Hijikata after the Australian qualifier defeated Italian Matteo Arnaldi 7-6 (7/0), 7-6 (9/7) to reach his third tour-level quarter-final of the season.
Carlos Alcaraz, the defending Queen's champion who won his third Grand Slam at the French Open earlier this month, was due on court later Wednesday to face Britain's Jack Draper.
