The 24-year-old could not hold on in the final 100m and missed out on a podium place by seventh hundredths of a second as Caster Semenya pipped her to bronze
Olympic champion Faith Kipyegon took gold in a time of four minutes 2.59 secs, with America’s Jenny Simpson clinching silver in 4:02.76. Muir came home in 4:02.97.
Muir was seventh in the 1500m at the Rio Olympics last year and was in third place just behind the leaders with 200m to go but faded to finish well behind Kenya’s Kipyegon.
She had qualified second in the semi-final, behind Olympic champion Kipyegon, and looked comfortable in the first part of her double bid but could not last the pace at the end.
Leeds Becket University graduate Laura Weightman, who is coached by former British middle-distance star Steve Cram, produced one of the perfroamnces of her life to finish sixth in 4:04.11.
Meanwhile, tearful Sophie Hitchon admits she blew her big chance after her hammer failure.
The 26-year-old, who won bronze at Rio 2016, could only finish seventh in London.
It left her in tears on the field after she was expected to challenge for a medal on another sobering night for British hopes.
Hitchon threw 72.32m but was over five metres behind winner, Poland’s Anita Wlodarczyk, and admitted she should have done better.
She said: “I felt like I was in better shape and if I had the rhythm I had in qualification, you don’t know what could have happened.
“Of course I am (going to beat myself up about the result). That’s part of my personality, maybe it comes out in me a little more and some athletes do better to hide it but I’m just really disappointed.
“I showed in qualification I was definitely in better shape. It wasn’t what I wanted, I’m just sorry I couldn’t produce something better.
“I don’t really know why, you can speculate things here and there.
“We’ll go back to the drawing board and start again for next year.”