Federer's bid to win his first title on the clay courts of the Rome Masters juddered to a premature halt on Wednesday when he lost his second-round clash against Spain's Albert Costa 3-6, 6-3, 6-2.
The top seed's defeat, along with those of U.S. Open champion Andy Roddick and third seed Rainer Schuettler in the opening round, left serve-volleyer Henman as the highest-ranked player still standing.
Henman swept past Czech Radek Stepanek 6-1, 6-1 to reach the third round on a day when rain brought play to an early end.
Federer, who had hoped to go one better than last year when he finished runner-up to Costa's compatriot Felix Mantilla, started his match against the 2002 French Open champion flawlessly, combining raking groundstrokes with delicately-angled volleys to cruise through the opening set.
His game fell to pieces when he appeared to be comfortably in control, however, with errors creeping into his game in the second set as his concentration wavered.
"People are looking at this too dramatically. I think this would have been an open match on any surface," said Federer.
"I lost to him in (the Masters Series event in) Miami a year ago on a hard court and here I've lost to him again.
"He's a very good player. He didn't give me much. It was up to me to do something extra, not him. He knew what he had to do," said the Australian Open champion.
IMPRESSIVE DISPLAY
Though few observers believe Henman will still be around on Sunday for the men's final, the Briton, who reached the quarter-finals of the Monte Carlo Masters last month, put on an impressive display while sweeping aside Radek Stepanek 6-1, 6-1.
"I've definitely improved (on clay) in the last couple of years, and that's been evident in my results," he said.
"Even so, I didn't expect to play as well as I did or have such a straightforward win. For my game every match on clay is a challenge.
"Now I'm through to the third round, which is as far as I've ever been in this tournament. Tomorrow I'll try to reach the quarter-finals."
His opponent for a place in the last eight will be Argentina's Mariano Zabaleta, who dumped out defending champion Mantilla 7-5, 6-3.
Behind Henman there is still a battery of claycourt specialists ready to take advantage of the top seeds' demise.
Russia's Nikolay Davydenko, who last week captured the Munich Open title, marked himself down as one of the most dangerous men left in the draw with a 6-2, 5-7, 6-2 victory over Chilean 13th seed Fernando Gonzalez.
Another player able to squeeze in a win before the rain arrived was eighth seed Nicolas Massu, also from Chile, who beat Irakli Labadze of Georgia 6-2, 7-5.
