While event organisers did debate postponing the race due to the treacherous conditions, the decision was made to race a shortened 12 lap main event.
Reed led the race from the start and held a commanding lead of over a minute before his Yamaha YZ450F stalled in the extremely wet and boggy conditions with only four corners remaining - and couldn't be restarted.
As he had lapped all but five riders Reed was at least declared a finisher and claimed sixth position, while Kevin Windham inherited victory ahead of fellow Honda riders Davi Millsaps and Jacob Marsack.
Windhan is Reed's closest championship challenger, but the Aussie still has a 24-point lead in the series and claimed not to be too disappointed by his last gasp loss.
"They were the worst track conditions we have raced on. It was so wet we should have been on jetskis instead of bikes," Reed joked. "While it was very disappointing not to take the win I was stoked with my own performance.
"I finished my heat 44 seconds in front and was over a minute ahead of everyone else in the main event. It was frustrating not to convert such a big lead and over 3 seconds advantage per lap into a win, but I am pleased because I know I rode well in the conditions," claimed Chad.
"Just by the nature of the track, it is by far the most brutal Supercross that we run," Windham said. "There is so much prestige in being part of Daytona. To win it is incredible."
In the Supercross Lites class race, Trey Canard continued his incredible start to the season by taking a 10 second victory over multiple Lites class champion Ryan Villopoto. Matt Boni was a further 35 seconds behind in third.
The next round of the 2008 AMA Supercross championships will be held in Minneapolis, Minnesota.