The 30-year-old had entered the second day of the competition ahead of her rival in the rankings, but a disappointing performance in the javelin throw, which saw her score a best distance of 46.06m to Thiam's 53.13m, cost her valuable points.
That left Ennis-Hill with it all to do in the final event, the 800m, with at least a personal best required to retain the gold medal.
Despite clocking an impressive time of 2:09.07, some seven seconds ahead of Thiam, it was not enough to overturn the lead and Ennis-Hill was forced to settle for the silver medal.
Teammate Katarina Johnson-Thompson began the day in fourth place and started strongly with a second-best score in the long jump, but she too came undone by the javelin throw and finished the competition sixth overall.
The bronze medal went the way of Canada's Brianne Theisen Eaton.