Jabeur, who comfortably swept aside British No 1 Johanna Konta in the first round, played with power and precision in the first set. She rallied from 3-0 down to eventually take it 7-5 after successfully breaking Wozniacki three times.
Tearful Wozniacki - 'I guess this was meant to be!'
But Wozniacki - the 2018 Australian Open champion - bounced back in the second set, winning it 6-3. In the third Jabeur regained control as she broke the world number 36 in the second game before storming into a 3-0 lead.
When the chips were down Wozniacki produced a clutch moment by breaking the Jabeur serve in the fifth game and looked like she may force a tie-break.
Wozniacki shares special moment with coach and father Piotr
However, the hard-hitting 25-year-old delivered the killer blow as she broke Wozniacki on match point in game 12 to march into the fourth round for the first time in her career.
Jabeur's win came at the expense of an emotional Wozniacki, whose dream of lifting the Australian Open one final time before retirement was dashed.
Highlights: Wozniacki bows out to Jabeur
SERENA LEADS TRIBUTES IN SPECIAL RETIREMENT VIDEO
Serena leads tributes to 'fighter' Wozniacki in retirement video
'I GUESS THIS WAS MEANT TO BE'
“It was only fitting my last match would be a three-setter, a grinder, and that I would finish my career with a forehand error," former world No 1 Wozniacki said in her final post-match interview.
Those are the things I’ve been working on my whole career. I guess this was meant to be.
'Really cool, very emotional' Wozniacki reflects on presentation after bowing out
"Obviously the achievements I had on the court were amazing. The fans, the feelings you guys give us when we play out here, the support feels really amazing,” she added.
"The support I’ve had from my family, especially my dad (Piotr) who has coached me since I was seven.
Those are the special memories I will always cherish, the journey together, it’s been really amazing, a great ride. I really am happy, I’m ready for the next chapter, I’m really excited for what’s to come. You’ll see me around off the court.
'I've got no plans tomorrow which is great!' Wozniacki after retiring