Zverev, who was aiming to win his third ATP Masters 1000 title of the season, lost 4-6 6-3 7-6(3) after Fritz fought back from 2-5 down in the final set.
His withdrawal from the mixed doubles means Ash Barty and John Peers bag a bronze medal for Australia.
Djokovic, 34-3 this ATP season, opens against Bolivia's Hugo Dellien, ranked 139th in the world. But then things could get harder.
The world No. 2 faces Nick Kyrgios in the round of 16 after the Australian defeated Andreas Seppi of Italy 6-3 7-5.
Zverev says he will not take part in a revamped Davis Cup finals showpiece event in Spain next November.
Alexander Zverev avoided a shock Wimbledon exit as the world number three battled back to beat American youngster Taylor Fritz 6-4, 5-7, 6-7 (0/7), 6-1, 6-2 on Friday.
The second-seeded German smashed a racket in frustration before finding his groove and setting up a meeting with 26th- seeded Bosnian Damir Dzumhur.
Germany's world No.3 Alexander Zverev beat veteran compatriot Philipp Kohlschreiber 6-3, 6-3 to win the Munich ATP Open for a second consecutive year on Sunday.
Federer, 35 years, will face Grigor Dimitrov, while Djokovic will face Adrian Mannarino, both matches will be held on Monday.