The Blues lacked creativity from start to finish at Bramall Lane, and were punished by two goals from David McGoldrick and one from Oli McBurnie.
It took just 18 minutes for the hosts to strike, as Frank Lampard's defence displayed their vulnerabilities.
The team that conceded three at West Ham ten days prior would do so once again, starting with McGoldrick tapping in a rebound after Kepa Arrizabalaga kept out McBurnie’s deflected strike.
While you could argue Chelsea were unfortunate with the bounces in the opener, there was no such debate about the second goal.
Sheffield United doubled their lead in the 33rd minute following an excellent move down the left.
Enda Stevens slung over a pin-point cross after playing a one-two with Ben Osborn, and McBurnie steered his header beyond Kepa.
Willian and Reece James were left stationary with Andreas Christensen and Kurt Zouma leaving the Blades striker with far too much space.
Chelsea responded with James’ thumping shot from outside the area, which was well-saved by goalkeeper Dean Henderson.
But Lampard’s side were unable to claw one back before half-time and trailed 2-0 at the break.
In the second half, Chelsea dominated possession but continued to struggle creatively.
United ultimately put themselves out of sight in the 77th minute when McGoldrick lashed home his second to make it 3-0.
A quick counter-attack saw McGoldrick send substitute Lys Mousset down the right and when Chelsea defender Antonio Rudiger botched his clearance, McGoldrick took full advantage.
The result leaves Chelsea in danger of dropping out of the top four, with Manchester United and Leicester both able to overtake them if they win this weekend.
Sheffield United meanwhile are up to sixth, just six points behind the Blues.