The American called it a day at the par-three 15th, when having completed the hole despite finding the water from the tee and throwing a club into the pond, he was summoned by an official who was concerned he had dropped the ball in the wrong place.
"If you play from a wrong place, and it's a serious breach then there could be a disqualification. But we always try to avoid this," referee Andy McFee told Sky Sports.
"When I knew it was not a serious breach I said 'You can carry on John'. But John did not want to do that.
"He said 'What's the penalty?' I told him it was a two-shot penalty, at which point he said 'I'm done.'" Daly carded a two-over-par 74 on day one and with the rules infringement would have been six-over for the tournament, three shots over the halfway cut.
Britain's Robert Coles posted a seven-under 65 to tie for the lead on seven-under (137) with Joost Luiten of the Netherlands, Denmark's Thomas Norret and Indian Gaganjeet Bhullar.
Daly's playing partner Miguel Angel Jimenez, the highest-ranked man in the field, improved on his opening round 73 to shoot a 69 and lie five shots back, while three-times major winner Padraig Harrington returned a 70 to extend his stay.
Daly had expressed his delight at being in Europe for the tournament, writing on his Twitter feed: "Going to get warm up tips from my man Miguel!" when it was announced he would play alongside the colourful Spaniard Jimenez.
Daly's outlandish attire and power hitting have proved a huge drawcard on the US PGA Tour over the last two decades since he won the 1991 US PGA Championship after finding out just a day before the tournament began that he would be playing.
He won the Open in 1995 but has not triumphed since 2004, has slipped steadily down the rankings to 652, and has rarely been out of the headlines since he has spent most of his adult life struggling with alcohol, anti-depressants, gambling and divorces.
In 2008 he smashed a spectator's camera into a tree when the individual tried to take his photograph at the Australian Open in Sydney.
In March he filed a complaint in a Florida court seeking $15,000 in damages from the organisers of the Honda Classic, alleging he aggravated an old injury as a female patron took a flash picture of him during the 2007 edition of the tournament.