The Blues dropped to fourth in the Premier League and all thoughts of a title-winning season are all but over.
John Terry should have put the home side ahead within two minutes but he somehow managed to scoop the ball over the crossbar from four yards after Frank Lampard's deep free-kick rebounded off Hull goalkeeper Matt Duke into the path of the hapless defender.
Hull's first attack on 19 minutes almost resulted in a goal but Michael Ballack cleared the ball off the line.
Seconds later, a quick-counter attack saw new man Ricardo Quaresma curl an inch-perfect right footer on target from just outside the Hull penalty area only to see Duke produce a fine fingertip save to steer the ball away for a corner.
Chelsea's early dominance of possession saw Alex narrowly go wide with a powerful header from another Lampard corner.
A Lampard left-footed pile-driving volley from 20 yards was goal-bound before Michael Turner deflected the ball wide.
Geovanni unsettled the Chelsea rearguard on 28 minutes when his 20-yard free-kick dipped over the Chelsea wall but did not find its way past Henrique Hilario.
Six minutes from the end of the first half, Hilario was caught napping following a powerful downward header by Kevin Kilbane but, luckily for the Portuguese goalkeeper, the wideman's effort just inched past the left upright.
Hull had a glorious chance on 57 minutes to take the lead when Fagan outpaced John Obi Mikel and scampered towards the Chelsea goal.
Hilario raced to the edge of his area and Fagan tried to chip the goalkeeper, but unfortunately for the visitors he could not get the ball over the keeper who snatched it out of the air.
Chelsea boss Luiz Felipe Scolari introduced Juliano Belletti and Didier Drogba in an effort to turn the tide in their favour.
Drogba replaced Quaresma on 63 minutes much to the boos of the Chelsea fans who voiced their displeasure at Scolari.
Dean Marney almost made Chelsea pay in the 67 minute when an inspired Geovanni breakaway move saw the ex-Spurs midfielder drift into space just inside the Chelsea area and slice the ball wide of Hilario and only just wide of the target.
Chelsea had a shout for a penalty turned down a minute later when Andy Dawson appeared to handle a Salomon Kalou shot, but referee Lee Mason ignored the claim.
However with 12 minutes remaining, Kalou cut through the Hull defence and left fly with a daisy-cutter of a shot but Duke did well to smother the goal-bound effort.
That was it for the Blues as Hull saw out the game with consummate ease.