The Spanish second seed came into the clash in outrageous form but was dominated throughout the 6-3 6-2 6-3 loss at Rod Laver Arena, the worst in his Grand Slam rivalry with the world number one.
Although reaching the final without dropping a set, Nadal said he was still short of his best after a long injury lay-off following the U.S. Open and lacked an edge to pressure the Serb.
"Of course, he played, I think, fantastic. At the same time it's true that when he's playing that way, I think I needed something else," the 17-times Grand Slam champion Nadal told reporters.
"I was not able to have that extra thing tonight, being honest.
"Playing the way he played tonight, I needed that defensive game to finally have the chance to be offensive.
"When he was hitting, it's true that maybe it was difficult to beat him even if I was at my 100 percent (level). But probably it would have been a little bit more of a fight."
Beaten in just over two hours, Nadal won barely a third of the match's points, was broken five times and conjured only a single break point in the third set, which the Serb saved.
He racked up 28 unforced errors while Djokovic leaked only nine, in an astonishing display of control.
Despite the thrashing, the defiant Spaniard said his five-set semi-final loss to Djokovic at Wimbledon last year was more disappointing than Sunday's defeat.
He has now lost eight successive matches to Djokovic on hardcourts, his last win coming at the 2013 U.S. Open.
But he was adamant he could rebound and find the skill to challenge again.
"What I need is time, I need work and I need more weeks like this one," said Nadal.
"That's really the only thing that I hope, is to have the chance to keep practising well and to have the chance to keep playing with healthy conditions.
"I can't be sad. It would not be fair to be sad. I played against a player that today was better than me."
While buoyed to have played seven matches at Melbourne Park following a litany of injuries, he conceded that he would still need to manage his schedule carefully.
"I need matches, but I can't go crazy to play matches. I have my age," said the 32-year-old.
"If I am healthy, I am competitive, I am happy, I have the chance to win tournaments. If not, things change 100 percent."
(Editing by Christian Radnedge)
