The 23-year-old had been on course for a silver finish heading into the fifth round of the 3m springboard event, but a mis-step with his footwork saw him over-rotate on his forward 4-1/2, earning him a disappointing 72.20.
That mistake was immediately punished as Xie and Cao hit back with respective scores of 99.90 and 99.45 to move into gold and silver respectively.
Laugher put up some fight with a 91.80 for his final dive, the back 3-1/2, but it proved futile as first Xie scored a 98.80 to cement his gold and then Cao made certain of silver with a 96.60.
Final leaderboard in full:
1. Xie Siyi (CHN) - 557.60
2. Cao Yuan (CHN) - 544.60
3. Jack Laugher (GBR) - 515.00
4. Rommel Pacheco (MEX) - 455.75
5. Patrick Hausding (GER) - 448.35
6. Yahel Castillo (MEX) - 431.15
7. Oliver Dingley (IRL) - 418.75
8. Sho Sakai (JPN) - 414.10
9. Mike Hixon (USA) - 410.65
10. Francois Imbeau-Dulac (CAN) - 398.10
11. Ken Terauchi (JPN) - 393.45
12. Guillaume Dutoit (SUI) - 386.05