Nadal, 29, said he had been playing with an anesthetic injection in the wrist in the first two rounds and that MRI scans had shown that the injury to the tendon was getting worse.
"It's not broken, but if I continue to play it will be 100 percent broken in a few days," said last night an emotional Nadal, the fourth seeded winner of 14 majors.
"To win the tournament I need five more matches, and the doctor says that's 100 per cent impossible."
"It's obvious that if it's not Roland Garros I would not take risks on playing the first two days, but it is the most important event of the year for me so we tried our best."
More From This Section
Despite his latest setback, the charismatic Spaniard said he will keep playing although his participation at Wimbledon next month is now in serious doubt.
"This is a tough moment, but it's not the end," said Nadal, who won the first of his nine French Opens as a 19-year-old in 2005.
It's also a huge boost to world number one Novak Djokovic's hopes of lifting a first French Open crown.
Nadal and Djokovic were seeded to meet in the semi-finals next Friday -- the date of the Spaniard's 30th birthday.
Second seed Murray cut down Croatian giant Ivo Karlovic to reach the last-16.
Murray, a three-time semi-finalist, had needed two five-set matches and three days of play to get to the last 32.
But yesterday the 29-year-old needed just a shade under two hours to beat 6ft 11in (2.11m) Karlovic 6-1 6-4 7-6 (7/3).
"At the end it was very close. I got off to a quick start and against someone like Ivo that's very important," said Murray.
The Swiss next goes up against Victor Troicki of Serbia.
Kei Nishikori of Japan also reached the last 16 with a 6-3 6-4 3-6 2-6 6-4 win over Spain's Fernando Verdasco.
The fifth seed, a quarter-finalist in 2015, will play Richard Gasquet after the Frenchman defeated Australian Nick Kyrgios 6-2 7-6 (9/7) 6-2.
- Kvitova out -
===============
Raonic, a quarter-finalist in 2014, next faces 55th-ranked Albert Ramos-Vinolas after the Spaniard stunned American 23rd seed Jack Sock 6-7 (2/7) 6-4 6-4 4-6 6-4.
Ramos-Vinolas, 28, had not won a match at Roland Garros since 2011 before this year.
In the women's tournament, Polish second seed Agnieszka Radwanska reached the last 16 with a 6-2 6-7 (6/8) 6-2 win over Barbora Strycova of the Czech Republic and now tackles Tsvetana Pironkova of Bulgaria.
Muguruza, a quarter-finalist in the last two years, next faces 2009 champion Svetlana Kuznetsova who beat Russian Fed Cup teammate Anastasia Pavlychenkova 6-1 6-4.
Romanian sixth seed Simona Halep, the runner-up to Maria Sharapova in 2014, needed three sets to see off 18-year-old Japanese player Naomi Osaka 4-6 6-2 6-3.
Halep, 24, next faces 2010 finalist Sam Stosur who defeated 2015 runner-up Lucie Safarova of the Czech Republic 6-3 6-7 (0/7) 7-5.
But Czech 10th seed Petra Kvitova became the fourth top 10 seed to exit by the third round after she lost 6-0 6-7 (3/7) 6-0 to American world number 108 Shelby Rogers.
Rogers, who had put out Czech 17th seed Karolina Pliskova in the first round, next plays Romanian 25th seed Irina-Camelia Begu.
With Halep also through, it's the first time since 1997 that two Romanian women have made the last-16.