Real's dream of winning a 10th European title at their Bernabeu stadium in May was shattered by Miralem Pjanic's 75th-minute strike, which secured a 1-1 draw for visiting Lyon in the last 16 second leg after Cristiano Ronaldo's goal in the sixth minute.
NEWS: Valdano backs Pellegrini after upset
"You can say it's a great achievement. We escaped the worst possible scenario in first half... Hats off to the players who gave all they had tonight. We played a superb second half and I think we deserved it," Lyon coach Claude Puel told TFI channel.
Real president Florentino Perez spent close to a quarter of a billion euros in the summer in a bid to end the club's Champions League drought and their latest failure raises fresh questions about the future of coach Manuel Pellegrini.
Real midfielder and captain Guti said the club's exit from the competition was even more painful this year given that the final was in their own stadium and criticised some of his team mates for selfish play.
"We have to be more of a team and not play so much as individuals," he told Spanish television.
"We didn't come out and perform as we should have done," he added. "It's a shame and now we have to think about the league which is all we have left. All these years have been painful and this one too, much more."
Guti lofted the ball to Ronaldo, set to lead Portugal's attack at this summer's World Cup, and the competition's top scorer this season took his tally to seven with a low finish that flew between Lloris's legs.
