The former world number eight looked in control as he took the first set but could do nothing to stop Nieminen as the Finn took the next two sets and the match 5-7 6-1 6-4.
Baghdatis, who reached the Australian Open final in 2007, had a disrupted 2008 due to injury problems and was hoping to use the Brisbane International to launch his assault on the top 20.
But his lack of match fitness had shown against Nieminen, who at number 38 is ranked 60 places higher than the Cypriot.
"I'm not match fit and I think I need to work on that in the next 15 days before my next tournament," he said.
"But... the way I'm hitting the ball is good, tactically maybe I can work on it a bit more, but that's all."
Baghdatis said a leg problem, which surfaced at 1-5 down in the second set, was due to tiredness.
The 23-year-old, a huge crowd favourite in Australia because of its large Cypriot and Greek communities, next plays at the Kooyong Classic in Melbourne, an eight-man round-robin invitational event held in the week before the Australian Open.
"That's why I choose to play there, because I'm sure I'm going to play two matches there," he said.
"Even if you lose you get to play two matches, and also play two great matches because your opponents are going to be tough and that's good, like today."
Baghdatis is still setting tough goals for the Australian Open, saying he wants to at least make the second week of the year's first Grand Slam.
"It depends also on the draw and a bit of luckiness," he said.
"Last year I had a tough draw -- I hope this year I will be a bit more lucky and to see myself in the second week would be a good Australian Open."