McDonnell lost the title he has held since 2014 within 112 seconds as Inoue blew him away with a flurry of punches.
Although the Doncaster fighter was the champion, he was very much the underdog going into the bout with Inoue in the challenger's native Japan.
McDonnell weighed in at 8st 5lbs 8oz, slightly lighter than his opponent , who came in at 8st 6lbs.
But the Englishman put on a reported 26lbs between yesterday's weigh-in and entering the ring.
Inoue started strongly at the first bell and took the fight to his 5'10" opponent as he landed a flurry of heavy punches.
And within 90 seconds, the 'Monster' had McDonnell on the canvas for the first time after a heavy left hook.
McDonnell did get back up but was up against the ropes and the 5'4" Inoue knew he had his prey between his teeth.
A flurry of sensational punches saw Inoue on the verge of victory and as he grounded McDonnell again with 68 seconds left in the round still, the referee rightly called it off.
It means Inoue has now won titles at light-flyweight, junior-bantamweight and bantamweight in 16 professional fights.
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