Thomas Tuchel's side started brightly in Croatia but quickly faded after conceding on the counter attack, with Dinamo running out deserved victors at Stadion Maksimir.
Raheem Sterling and Pierre-Emerick Aubameyang combined nicely in the opening five minutes to create the game's first chance, with the former's shot being blocked by Stefan Ristovski from close range before a late offside flag was raised.
A low cross from Kai Havertz managed to evade everyone in the six-yard box soon after as Chelsea's front three began to click into gear.
Mateo Kovacic managed to win the ball back in midfield and set Aubameyang racing clear, but he was denied by a brilliant recovery challenge from Josip Sutalo.
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But Dinamo scored at the end of an enthralling breakaway to take the lead. Bruno Petkovic's neat layoff sent Mislav Orsic racing away, and he managed to outpace Wesley Fofana and lift a shot over Kepa Arrizabalaga.
Orsic then curled a strike from 18 yards just wide, while Arrizabalaga was forced into a save by Arijan Ademi.
The Blues went into the break a goal behind, failing to create an opening and responding poorly after Dinamo's opener.
Chelsea came racing out of the blocks again trying to find an equaliser after the break, with Hakim Ziyech trying his luck from distance and another cross from Havertz missing his teammates.
Aubameyang thought he'd scored his first Chelsea goal when Kovacic picked out Ben Chilwell to square for the Gabonese striker to tap in, but the left-back was offside and the strike was chalked off.
Arrizabalaga was called into action once more as he tipped a thunderous Ristovski strike onto the bar, while Chelsea substitute Armando Broja made Dominik Livakovic work with his cross-cum-shot.
Robert Ljubicic made an outstanding block to keep Havertz from powering home a header from Mason Mount's lofty cross, and Reece James saw an effort strike the post.
Livakovic produced a wonderful double save to keep out Jorginho and Ziyech, though the flag was raised against the latter eventually.
Dinamo managed to ride out eight minutes of stoppage time to claim a famous win and condemn Chelsea to their third defeat of the season.
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