Raducanu, who reached the fourth round in California last year, lost 6-3 7-5 to two-time major winner Sabalenka as she continues her comeback.
The 21-year-old, ranked 250 in the world, was a wildcard at the tournament following an injury-disrupted 2023.
“It was a good success, I would say,” Raducanu said of her week.
I think I have handled myself a lot better on the match court. I was a lot more positive and hungry to play, and that showed I think in the tennis that I did play.”
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Raducanu’s second-round victory over Dayana Yastremska, who retired with illness, was the first time the English player had recorded back-to-back wins since successfully coming through three in a row at Indian Wells 12 months ago.
The shock 2021 US Open champion made her return to the tour in January following an eight-month absence, during which she had operations on both of her wrists and surgery on her ankle.
She said she was “not too concerned” about recent results – having won just three matches in the four tournaments she had played before Indian Wells – as the priority this year is to develop her game.
Testing herself against Sabalenka, who successfully defended her Australian Open title in January, Raducanu will be pleased with the progress she showed.
A single break of serve in the sixth game was enough for Sabalenka to take the first set, but only after Raducanu dismissed two set points on serve before putting her opponent under pressure with three break points as she served for the set.
Sabalenka moved a step closer to victory by claiming the first break five games into set two.
Raducanu produced an immediate response to stay in contention and continued to trouble the second seed by creating a break point after holding serve to lead 4-3.
Sabalenka struck what proved to be the decisive blow when she broke for a 6-5 lead, eventually serving out the contest with her fourth match point after Raducanu again missed three break points as she fought hard until the end.
The Belarusian will next play American Emma Navarro, who beat Elina Svitolina of Ukraine 6-1 4-6 6-3.
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American third seed Coco Gauff defeated Italian Lucia Bronzetti 6-2 7-6 (7-5) and the US Open champion will play Elise Mertens in the last 16.
Belgian Mertens progressed with a 7-5 6-4 victory against Japan’s four-time Grand Slam champion Naomi Osaka.
Maria Sakkari, of Greece, beat France’s Caroline Garcia 6-3 6-4, while Russian Daria Kasatkina beat American Sloane Stephens 2-6 6-4 6-4 and China’s Yue Yuan was a 1-6 6-4 7-6 (7-2) winner against American Caroline Dolehide.