Continuing the drama that has punctuated this year's Tour, Kittel crashed 20km into the 17th stage when placed under pressure by Matthews and his Sunweb team.
The Quick-Step Floors sprint ace, who had already won five stages in this Tour, injured his shoulder but kept riding on as his Tour de France dreams slipped further away, an hour and a half into the stage, he abandoned.
Matthews had already reduced Kittel's lead to just nine points when the Australian was in the well engineered early break and took out the intermediate sprint at 47.5km ahead of Lotto-Soudal's Thomas de Gendt.
That drew Matthews to within nine points of a suffering Kittel who was facing another 135km of mountainous terrain unsuited to his talents.
Matthews had closed the gap on Kittel by winning stages 14 and 16 and has a big 160-point lead over 11-time Tour stage winner Andre Greipel (Lotto-Soudal).
"After getting 50 points yesterday I knew that it was game on," Matthews said. "I knew beforehand that I had to be active to get those 20 points today and was aware that even if I did get those points it was still going to be difficult. You never want to see a guy out of a race like this, it's been such a good battle up to this point and I hope Kittel is ok."
"You never want to see a guy out of a race like this, it's been such a good battle up to this point and I hope Kittel is ok.
"It's not nice to get the green jersey in those circumstances but I've also fought a lot for having it. I won't let it go. And now the Champs-Elysées stage is much more open as Marcel was the hot favourite."
Matthews started the Tour as an outsider in the Green Jersey battle with Peter Sagan (BORA-hansgrohe) the overwhelming favourite after winning the last five.
But Sagan controversially was disqualified after the chaotic stage-four finish where Mark Cavendish (Dimension Data) crashed out of the Tour.
Cavendish had won the Tour points classification in 2011, the year before Sagan started his domination.
After Kittel dominated the end of stage 11 in Pau for his fifth win in this year's Tour, he led Matthews 335 points to 202. By the time Kittel pulled out of the race in stage 17, that margin was 373-364.
If Matthews can maintain his lead through to Sunday and the famed last stage into Paris, he will become the third Australian to win the points classification.
Robbie McEwen won the green jersey in 2002, '04 and '06, plus Baden Cooke took it out in '03.
