The third seeded Indian pair, which united after nine years with an aim to complete their career Slam, lost 3-6 4-6 to the top seeded American twins in the summit clash of the men`s doubles event which lasted a little over one hour.
The Bryan brothers won their fifth Australian Open trophy but it slipped out of the hands of Paes and Bhupathi for the second time, having lost the title clash back in 1999.
They reached the final here with different partners after separating but neither of the two players could complete the career Slam.
Paes made the final with Czech Republic`s Martin Damm in 2006 while Bhupathi ended runners-up with Bahamas` Mark Knowles in 2009.
However, it is a fabulous start for the Indian pair in the 2011 season as they had won the Chennai Open early this month.
Paes and Bhupathi last played at a Grand Slam together in 2002 when they lost in the second round.
Bhupathi said he would continue playing with Paes in the remaining season.
"There is a reason why Mike and Bob are number one team.
When they have a first serve percentage of 83, it is impossible to beat them. I thank my partner (Paes), it took the best team in the planet to stop this train. Looking forward to playing with you a lot more this year," Bhupathi said.
In today`s final, the Bryan brothers dominated as they served well and were miser on the unforced errors` count but had the Indians converted the break chances in the very first game of the match, it might have been different.
Left-handed Bob served extremely well after being down 0-40 to lead 3-2 on serve.
The sixth game, in which the two pairs played a stunning 20-shot rally, turned the tide in favour of the defending champions as the Americans converted their first of the two break chances off Paes` serve.
It was easy for the Americans from there on as Bob served out the set after just 29 minutes of play.
The Indian duo did well to save a breakpoint in the fifth game of the second set but Bhupathi dropped his serve in the ninth game to hand the Americans the advantage.
Bob served out the set, match and the championshiop in the next game after saving another breakpoint.