Russian qualifier Aslan Karatsev comes from two sets down to pull off another stunning victory to reach the Australian Open quarter-finals.
Bulgarian Dimitrov, a semi-finalist in 2017, dismantled the out-of-sorts Austrian third seed 6-4 6-4 6-0.
“Throughout every season you have one of those matches, you just keep the ball rolling, and today was one of those,” said 18th seed Dimitrov.
He will face qualifier Aslan Karatsev, who stunned Felix Auger-Aliassime.
Thiem came through a gruelling five-setter against Nick Kyrgios to reach this stage, fighting back from two sets down, but there was no such reprieve against Dimitrov on Sunday.
The US Open champion looked to have taken the momentum with a break in the opening set, but Dimitrov immediately broke back and won four successive games on his way to taking the first set.
It was the same pattern in the second set, a Thiem break followed by a revival from the 29-year-old, before he motored to victory in the final set to win in just over two hours on Rod Laver Arena.
“I was entirely trying to focus on what I was doing,” said Dimitrov, a former world number three. “He might have struggled with something, I don’t know, but I give myself credit for staying focused.”
Russian qualifier Karatsev came from two sets down to pull off yet another stunning victory to reach the quarter-finals.
The 27-year-old world number 114 beat Canadian 20th seed Auger-Aliassime 3-6 1-6 6-3 6-3 6-4.
With victory over eighth seed Diego Schwartzman in the previous round, Karatsev has been the surprise package at this year’s event at Melbourne Park.
He is the first man to reach a major quarter-final on debut for 25 years.
Dogged by injury during his career, Karatsev had failed in nine previous attempts to reach a Grand Slam main draw, but at the ATP Cup earlier this month he was described by world number four Daniil Medvedev as Russia’s “secret weapon”.
He has more than proved this, having reached the fourth round without dropping a set before mounting an incredible comeback against Auger-Aliassime in the first five-setter of his career to set up a last-eight meeting with Dimitrov.
“I’ll be ready for everyone,” said Karatsev, who is the first man since Alex Radulescu in 1996 to make it to the last eight on their Grand Slam debut.
Later on Rod Laver Arena, world number one Novak Djokovic is due to take on Canada’s Milos Raonic. The Serbian top seed has expressed doubt over his fitness after picking up an abdominal injury in the previous round.
Meanwhile, British interest in the singles might have ended with Cameron Norrie’s exit to Rafael Nadal on Saturday, but there was a mixed doubles win on Sunday in Melbourne.
Neal Skupski teamed up with Slovenia’s Andreja Klepac to beat Australian pair John Peers and Belinda Woolcock 6-2 5-7 (12-10) in a match tie-break in the first round.
