The Australian Open champion was beaten 7-6 (7-5) 7-6 (7-5) in round three as the Czech picked up her first win over Li at the third attempt.
Zahlavova-Strycova had never previously made it to the fourth round at the All England Club but held her nerve to record a notable triumph.
After coming through a hard-fought tie-break to open up a lead, she was forced to save a set point in the 10th game of set two.
Li's campaign was then brought to an end in dramatic fashion as, after successfully overturning a line call at 6-5 down in the second tie-break, she double-faulted to cap off a disappointing performance.
There was no such strife for third seed Simona Halep, who saw off Lesia Tsurenko of Ukraine 6-3 4-6 6-4 in a second-round tie.
The French Open finalist wasted three match points against the world number 170 but was eventually able to book a meeting with Switzerland's Belinda Bencic.
Bencic broke American opponent Victoria Duval six times as she progressed 6-4 7-5 while fourth seed Agnieszka Radwanska faced little resistance from Portuguese qualifier Michelle Larcher de Brito.
The world number 102 accounted for Svetlana Kuznetsova earlier in the competition but struggled to compete on Friday - going down 6-2 6-0 in less than an hour.
Radwanska will take on Ekaterina Makarova after the Russian saw off Caroline Garcia of France 7-5 6-3.
Sixth seed Petra Kvitova came from a set down to edge past Venus Williams - with the five-time Wimbledon champion going down 5-7 7-6 (7-2) 7-5.
Williams has not made it past the third round of a major since doing so at Wimbledon in 2011.
Tenth seed Dominika Cibulkova was another of the leading competitors to bow out as she fell to Lucie Safarova in straight sets.
Czech Safarova is into the fourth round for the first time after her 6-4 6-2 success.
Denmark's Caroline Wozniacki was the first player into the last 16 on Friday, the 16th seed showing her experience to see off 16-year-old qualifier Ana Konjuh in straight sets.
Despite making a flying start against Shuai Peng, Lauren Davis failed to maintain her momentum as she lost out 6-0 3-6 3-6, while Tereza Smitkova sprang a surprise by knocking out Serbia's Bojana Jovanovski.
The pair are separated by 130 places in the rankings but Smitkova won through 4-6 7-6 (7-5) 10-8, having hit 16 aces to Jovanovski's seven.