Laugher, 29, took bronze with Anthony Harding in the 3m synchronised event and was seeking to add to his four Olympic medals, having qualified with the third-best score.
But his challenge was effectively ended by a mistake on his third dive when a significant over-rotation resulted in a large splash, with team-mates’ heads in hands in the stands.
The dive scored just 35.70 points and Laugher dropped from fourth to eighth.
Houlden was solid throughout but did not threaten the medal places, finishing 72.65 points behind Olvera.
Olvera was another 29.80 points behind second-placed Wang, with Xie producing a supreme performance to become a surprise winner.
Since winning the title in Tokyo the 28-year-old had taken a two-year break, completed a Masters degree and turned to coaching.
In Xie’s absence, Tokyo 2020 silver medallist Wang had won the past three world titles.
China will again be strong favourites for gold in Friday’s women’s final, which begins at 14:00 BST, but Great Britain again have two entrants after Yasmin Harper and Grace Reid came through the semi-finals.
Noah Williams, a 10m platform synchronised silver medallist with Tom Daley, begins his individual campaign on Friday morning in the preliminary rounds from 09:00 BST.
