The Blues fell at the first hurdle in the Isuzu FA Trophy, losing on penalties at Nantwich Town.
After playing the final 15 minutes with ten men due to an injury to Adam Thomas, the game went straight to spot kicks and Nantwich scored four of their five to go through via a shootout for the third round in succession.
Calum McIntyre made seven changes from the FA Cup defeat at York in midweek, which included a first appearance for new signing Christian Norton.
Nantwich almost took the lead early on when a well worked short corner saw Wyll Stanway get down well to save Steven Hewitt’s low shot.
Just seconds after the follow up was blocked on the line after a dangerous cross from Sean Cooke, Chester countered and Iwan Murray released Christian Norton but his shot hit the side netting.
Nantwich continued to create, as Connor Rankin glanced just wide from a Hewitt cross, before Cooke tried to catch Stanway out with a quick free kick which floated wide.
On 25 minutes, a good move saw Ollie Heywood play a neat one-two with Reece Daly before crossing, just Charlie Caton’s shot was deflected behind.
Just before the interval Stanway made a strong stop away to his left to beat away a free kick from Cooke.
The game calmed down in the second half and there was few chances – a half opportunity came and went for the hosts as Rankin nodded wide on 50 minutes.
Then on 73 minutes the Blues were down to ten men as sub Adam Thomas went down with what appeared to be a wrist injury and all three changes had been made.
Stanway had to be alert to save a tame effort from Hewitt, as the game went into a shootout.
Chester were on the back foot as both Weeks and Caton were denied by Danny Roberts, but Stanway then foiled Hewitt as Nantwich looked to win it.
Whitehouse and Daly converted for the Blues, but then Ahmed Ali fired in the winning penalty to send the Dabbers through.
Chester: Stanway, Sparrow, Burke, Roberts, Heywood, Whitehouse, Daly, Murray (Taylor 68), Maguire (Weeks 57), Caton, Norton (Thomas 53).
Subs Not Used: Davies, Evans, Bott, Edwards.
Attendance: 1,414 (Approx 630 Chester).