After knocking out fellow Curtis Cupper and stroke play medalist Paige MacKenzie in the second round Thursday, Lee lost 1-down to Katharina Schallenberg of Germany in the quarters.
Lee was looking to become just the second Curtis Cup player to win the Women's Amateur in the last 10 years. Schallenberg made it as difficult as possible, never trailing in the match.
'I expected her to play good golf, and I had to play good golf to keep up with her,' Schallenberg said. 'And I did.'
Also in the quarterfinals, Stacy Lewis rolled to a 6 and 4 victory over Ayaka Kaneko, Kimberly Kim eased to a 3 and 1 win over Eileen Vargas and Lindy Duncan defeated Jennie Arseneault in 19 holes.
Duncan made par at the extra hole -- the 387-yard, par-4 13th -- for the win. She was 1-up through 16 holes before Arseneault squared the match with a par at the 17th.
'Today was a struggle,' Duncan said. 'I wasn't putting very well, but I just somehow tried to get some kind of a swing together and I made a couple of good putts and it turned me around.'
Schallenberg will face Lewis in the first semifinal match beginning at 1:00 p.m. (ET) Saturday at Pumpkin Ridge Golf Club's Witch Hollow Course. Duncan and Kim will begin their match 15 minutes later.
The winners will advance to the 36-hole match play final on Sunday.