The Chorley star suffered a 3-0 defeat to Egypt’s Nour El Sherbini.
Massaro had been in red-hot form throughout the tournament.
But she could not cope with the 20-year-old world No.5’s unrelenting attacking style.
At 2-0 down in games, Massaro finally looked to have established her grip on the match, taking a 7-2 lead in the third, but was powerless to resist as El Sherbini stormed back to turn the momentum on its head and take the game and match in just 35 minutes.
“I have been struggling with a flu so I really did not expect to reach the final but I think I played perfect today,” said El Sherbini.
“Because I was struggling with my breathing I was going for every shot and thankfully they were going in.
“Normally when I play Laura it is a tough five-game match so to win 3-0 is an achievement that I’m definitely proud of.”
She will now play fellow Eqyptian Raneem El Welily in the final.
For Massaro, her run to the last four in Chicago has helped maintain her place at the summit of the world rankings for a third consecutive month.
She has extended her lead over closest rivals Nicol David and El Welily to over 600 points in the March 2016 PSA Women’s World Rankings.
Massaro had a disappointing JP Morgan Tournament of Champions campaign in January, losing at the last eight stage.
But she watched on as David and El Welily both failed to reach the title-decider and eat into Massaro’s grasp on the No.1 slot.
Frenchwoman Camille Serme, who beat Massaro to the British Open title last May, is the only riser inside the top five, moving up one place to No.4 after wining the Cleveland Classic – her first title since that British Open.
Alison Waters of England returned to the top 10 after finishing as runner-up to Serme in Cleveland, while compatriot Emily Whitlock also movesdup inside the top 20, climbing one place to No.17.
After falling out of the top 20 in February for the first time in 223 months – dating back to 1997 – Australian Rachel Grinham returned to occupy the No.20 position and rounds out the elite list.
Top 10 rankings: 1 – Laura Massaro; 2 – Nicol David; 3 – Raneem El Welily; 4 – Camille Serme; 5 – Nour El Sherbini; 6 – Omneya Abdel Kawy; 7 – Amanda Sobhy; 8 – Nouran Gohar; 9 – Nour El Tayeb; 10 – Alison Waters.