Victory would have given the Spaniard a 14th grand slam title but as in 2010 and 2011, his body failed him and he was swept away in a 6-3 6-2 3-6 6-3 defeat.
The world number one said that he first felt pain in the warm-up and he was then reduced to tears at the start of the second set but battled on because another injury-affected exit would have been a tough pill to swallow.
“It is true that I was not very lucky and this is a tournament that is painful for me,” an emotional Nadal, who missed the 2013 tournament, told reporters.
“It is a tournament that I really had some troubles physically in my career and is something that is painful for me. But that’s part of life. That’s part of sport. It’s not the end of the world. Is just another tough moment.”
Nadal captured the Melbourne major in 2009 but suffered a knee injury against Andy Murray in 2010 and a hamstring injury the following year scuppered his chances of winning a fourth successive grand slam title.
The 27-year-old had looked unbeatable when he crushed Roger Federer in straight sets in the semi-finals but on Sunday, his injury woes struck again.
Although he improved after treatment to take the third set, his movement was still severely affected and the speed of his serve was hugely reduced.
Nadal said he had not wanted to quit in a grand slam final and that Wawrinka fully deserved his win.
“The last thing that I wanted to do was retire,” said Nadal, who would also have become only the third man to win all four majors at least twice if he had triumphed. “I hate to do that, especially in a final.
“At the same time, it is tough … (when) … the whole year you are working for a moment like this and the moment arrives and you feel that you are not able to play at your best.
“So it was not an easy situation for me to be on court like this but I tried hard until the end, trying to finish the match as good as I can for the crowd, for the opponent, for me.
“I tried everything until the last moment, but was impossible to win this way. Opponent is too good.”
Nadal was loudly booed by the crowd when he returned from a lengthy medical time out early in the second set, with the fans failing to realise the severity of the injury.
Nadal’s uncle and coach, Toni Nadal, told reporters in French that at one stage, the world number one said: “‘It’s over’.
“Then later, he asked me what to do. I said, ‘play – you don’t quit in a final’.
“We thought he would lose 6-2 6-3 6-0.”
Former world number one Pete Sampras had expected Nadal to draw level with his haul of 14 grand slam titles on Sunday but instead the American great could only offer words of consolation to the Spanish warrior during the presentation ceremony.
“I thought he was going to stop, I really did,” Sampras said. “But he continued to play, he’s a fighter.”
“I think Rafa just wanted to complete the match and he actually looked pretty good at the end. He wasn’t moving great though, and I think Stan deserved to win.”
Nadal said that even without the injury he might have struggled to beat Wawrinka, a man who had not won a set from him in 12 previous matches.
“He was playing amazing,” Nadal said. “It is very tough to stop him when he’s playing that way.
“So I just congratulate him because he’s playing better and better and he’s playing with amazing confidence, hitting every ball very, very hard, moving himself great.
“(For me) … just a bad day, tough day. But lot of people in the world have lot of very tough days. I am not this kind of person, so I feel very lucky.”
(Editing by Pritha Sarkar)