Roddick, a four-time champion at Queen's, lost 6-4, 7-6 (8).
Three of the top five seeds failed to survive on Thursday, with No. 2 Novak Djokovic and No. 5 Marin Cilic joining No. 4 Roddick as third-round losers.
Djokovic fell 6-3, 4-6, 6-2 to Xavier Malisse of Belgium, and Cilic was beaten 7-6 (2), 6-2 by 12th-seeded Michael Llodra of France.
Top-seeded Rafael Nadal survived a fierce challenge from Denis Istomin of Uzbekistan, reaching the quarterfinals with a 7-6 (4), 4-6, 6-4 victory.
Nadal brushed aside injury concerns after he received treatment to his right leg after losing the second set.
"I called the physio to check how was the leg, and, well, I am still doing some tests," Nadal said. "I have to be sure that there's nothing dangerous, because, you know, the situation is if something happens this week, it's difficult to be ready (for Wimbledon) in one week.
"I am not thinking right now about going out of the tournament. I think I will play tomorrow. Sure, I have to be careful and I have to check a little bit more."
Nadal struggled to overcome Istomin, who rallied well and made few unforced errors in their first meeting.
After Nadal edged the first set in a tiebreaker, Istomin took the second with a break in the opening game.
In the decider, Nadal served for the match at 5-3 and held two match points, and although Istomin broke him, the Spaniard earned the victory on his third match point by breaking his opponent with a forehand winner.
Djokovic was scathing in his criticism of tournament officials for making him play in conditions he considered dangerous.
"The conditions today are impossible," Djokovic said. "Under these conditions, to be able to play a professional tennis match, this is ridiculous.
"The whole match you can feel the rain and the court was extremely slippery. A couple of times I could have injured myself, to stretch the muscle or something like that."
Third-seeded Andy Murray also faced an early exit as he trailed American Mardy Fish 3-0 in the final set, but the Scot fought back to 3-3 and was furious when play was suspended because of poor light.
Roddick was under pressure for the entire match and failed to convert two set points in the tiebreaker before Sela clinched victory on his second match point by striking a backhand winner.
"He played great," Roddick said. "Credit to him. I think he had a very specific game plan, and I thought he executed it very well and never dug himself a hole on any service games, never had any sloppy errors.
"I think I could have done some things differently, but I thought he played a pretty perfect match. He outplayed me today."
Sela will next face Germany's Rainer Schuettler, who had a walkover when 11th-seeded Richard Gasquet withdrew with a back injury.
Seventh-seeded Sam Querrey of the United States advanced with a 6-4, 7-6 (5) win over Marcel Granollers of Spain, while No. 8 Feliciano Lopez beat Julien Benneteau of France 6-2, 6-4.