The 40-year-old, who made his Grand Slam breakthrough in Melbourne by winning the 2014 title before adding trophies at the French Open and the US Open in subsequent years, had announced that 2026 would be his farewell season.
After battling past Laslo Djere in his opener and edging a five-set marathon against a much-younger Arthur Gea in the last round, Wawrinka mounted another valiant effort but ran out of gas against Fritz on John Cain Arena.
"He (Fritz) is an amazing player, he's a tough fighter to play against, so congratulations to him and his team. He was better today, no question about that," Wawrinka said.
"The atmosphere was unbelievable, so thank you guys for always showing up."
Wawrinka shrugged off losing a tight opening set tiebreak and cruised through the next, only to surrender the third set before taking a medical timeout, after which he struggled at times to keep up the pressure.
Fritz edged in front in the fourth set and there was no stopping the 28-year-old, who withstood a barrage of late backhand missiles from Wawrinka to book a clash with Italian fifth seed Lorenzo Musetti for a place in the quarter-finals.
"It was a really tough match, the environment as well," Fritz said of his battle with crowd favourite Wawrinka.
"I can't blame anyone in the crowd for cheering for Stan. It's amazing what he's out here doing. I have so much respect for the passion and the drive that it takes to be doing what he's doing this week."
After a video tribute on the big screen, Wawrinka shared a beer with tournament director Craig Tiley before departing the tournament as a player for the last time.