Kassem was defeated by US fighter Montana De La Rosa via a second-round armbar in front of a soldout crowd at Rod Laver Arena.
The loss was the first in six fights for Kassem, who turned professional in 2015.
De La Rosa said the win "meant everything" to her.
"It means I can keep climbing up the ranks and doing what I love," she said. "It all went to plan."
Kassem, who is of Lebanese descent, began MMA training in 2013 at Sydney gym Australian Top Team.
She told SBS Arabic24 in January that she considered her ascent to the world's biggest MMA organisation as an opportunity to 'break down stigmas for females in sport'.
"My family is supportive of what I'm doing. In a way, it's pretty cool because not many females, especially from my background, participate in this sport.
"That does push me, and I do hope I inspire somebody else to go out there and try something they haven't tried before, to follow their heart because I believe that I do a lot of things by following my heart."
UFC 234 was scheduled to be headlined by a middleweight contest between champion, Australian Robert Whittaker, and US fighter Kelvin Gastelum, however, that fight was scratched on the morning of the fight when Whittaker sustained a serious abdominal injury.
Also at UFC 234, Melbourne fighter Jim Crute was victorious via first-round technical knockout against US veteran Sam Alvey, improving his record to 10 wins with no losses.
“My coaches tell me, my training partners tell me, everyone tells me, when I am relaxed no one can touch me. I never believed it but now I do and my whole preparation wasn’t about strength and conditioning and all that, it was about getting my mind right, and being in that happy place when I fought," he said.
I want some time off now, I’ve had a busy year but if the UFC offer me something big I’ll come back. For now I want to enjoy some time off, see my family, see my dog, I hardly get to see my dog. Hopefully, I’ll get fifty grand and I can buy myself a nice house, you never know.”
