The Blues were knocked out by the Ligue 1 side after a 3-3 aggregate draw sent PSG through on away goals on Wednesday night.
That loss left Arsenal and Manchester City as the only English teams left in Europe’s elite club competition, and both sides will need to overturn first-leg deficits next week.
And former Manchester United defender Neville believes that Chelsea’s Champions League exit is a cause for concern for English football in general.
Speaking to Sky Sports after Wednesday’s 2-2 draw at Stamford Bridge, Neville said: “It’s a shocker for the Premier League.
“I have to say our best-equipped team has gone out to not a particularly special team, but PSG deserved it.
“English football has had moments to reflect in the last two few years. Chelsea are obviously nowhere near as good as we thought they could be.”
He continued: “We are on the ropes, make no mistake about that. We’ve been hard on Monday Night Football and Super Sunday on some of the defending, and the reason we are hard is because we know it’s going to play out in the big games in Europe.
“There are too many times you watch matches in the Premier League and say ‘what a great match’, with the entertainment and the rest of it.
“But that is not going to work when you come into the real cutting edge, cut throat business of Champions League football.
“It’s incredible. We’re going to have to have a good long look at ourselves.”
Arsenal travel to Monaco next week looking to overturn a 3-1 first-leg loss, while Manchester City take on Barcelona at Camp Nou after losing last month’s last-16 game 2-1 at Etihad Stadium.
Chelsea remain on course to win the Premier League title as they head into Sunday’s game against West Ham 10 points clear at the top of the table.
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