Stephens holds the javelin world record in his classification and took world gold in Christchurch last year.
He was the final British athlete in action at the Olympic Stadium and was fully expected to win Great Britain's 11th Paralympic track and field gold.
But he was left in tears after officials decided his throwing style did not comply with the rules.
He recorded two no throws, saw his confidence shattered, and then produced a lacklustre third attempt of 33.10 metre to finish 12th.
"The interpretation of the rule was misunderstood. The rule has always been the same, since I won the world title in New Zealand and broke the world record,” he said.
"You are allowed to lift in your chair if you have a foot in contact with the floor. I don't lift, one buttock is always in contact with my seat so it shouldn't matter if my foot comes off the floor.
"For some reason the officials decided I was no throwing. I wanted to build momentum through the competition, so when the first red flag went up my head went.
"When it happened the second time I protested with a technical official and that's when I realised the whole way I throw was never going to be good enough.
"It's heartbreaking to come to your home Games with this fantastic crowd and see the whole way you thought you could compete turned upside down.
"It's never happened to me before and I'm fighting a losing battle. I'm throwing within the rules but the officials need to have a clear ruling. There shouldn't be an interpretation - it should be black and white. I thought I was complying with the rules."
Meanwhile, former Paralympic champion Helen Robson settled for seventh in the T36 100m final, clocking 15.23 seconds as Russia's Elena Ivanova took gold.
It was also a victory that moved Russia ahead of Great Britain in second place on the overall medal table with 35 golds compared to 33.
Great Britain have achieved their target of winning more than 103 medals - they currently have 118 - but they also wanted to repeat their Beijing performance and finish second to China, who have won 231 medals, more than double anyone else.
- Great Britain