Andy edged by Nishikori
The Briton fought back from 4-1 down in the second set to level, but Nishikori broke serve for a third time to win 6-4 6-4.
With six-time champion Roger Federer and in-form Milos Raonic still to play, Murray faces a tough task to claim one of the two semi-final places from Group B.
He will meet the loser of Sunday evening’s match between Federer and Raonic on Tuesday.
After an exhausting six-week schedule that saw him play 23 matches and win three titles to earn his place in London, Murray could not carry that form into his opening match.
World number five Nishikori, 24, overcame a nervous start on his ATP Finals debut and built the pressure on Murray, who made 28 errors and won just 27% of points on his second serve.
Andy, had been given a warm reception from the O2 Arena crowd on his first appearance in the UK since Wimbledon, and the Brit looked well set after Nishikori double-faulted to drop serve at 3-2.
The match then shifted momentum dramatically and it would ultimately prove decisive in a desperate service game from Murray. Errors off both backhand and forehand sides left him at 0-40, and a wild double fault gave up the game, allowing Nishikori back into the set.
Andy had his chances early on as Nishikori made just 40% of first serves and threw in five double faults, but the Briton could not find his timing on the return and was made to pay when his opponent crunched a second-serve return to earn two set points in game 10, winning the second.
Dominating from the baseline and consistently threatening the Andy serve, Nishikori reeled off five games in a row and Andy did well not to fall 4-0 down in the second set as he clung on in a nine-minute service game.
There has been plenty of evidence of Murray’s fighting spirit in recent weeks, twice saving five match points to win ATP finals against Tommy Robredo, and another comeback seemed possible when he hauled himself back level at 4-4.
A visit from the trainer to give his calf a quick rub might have revealed the strain of recent weeks taking its toll, however, and Nishikori reacted well.
He held serve to lead 5-4, with an overhead making up for an eighth double fault, and the pressure was back on Andy.
The former Wimbledon champion duly netted a backhand to fall 15-40 and two match points down, and could only fire a backhand long to leave himself facing an up hill battle to reach the semi finals.