Dennis hit the deck in an incident that saw many riders go down in the middle of the peloton, with around 25km left to ride.
The Australian get back on his bike but was unable to catch back up to the peloton, meaning that team-mate Stefan Küng inherits the yellow jersey.
That the jersey remains in house will be a consolation for BMC, but the team would much rather have kept Dennis in the lead, given how he had harboured hopes of competing for the GC.
Given that Richie Porte also ceded the overall lead at the last stage of the Critérium du Dauphiné earlier today, it has been something of a day of disastrous reversals of fortune for BMC.
Stage winner Gilbert was part of a small group of riders who managed to open a gap over the rest of the peloton in a frantic finale. The peloton did close the gap on the finishing straight, but the head start afforded the group was enough for Gilbert to win the sprint, ahead of his fellow escapees Patrick Bevan (Cannondale-Drapac) and Anthony Roux (FDJ).
Niccolo Bonifazio (Trek-Segafredo) and Peter Sagan (Bora-Hansgrohe) showed impressive turns of speed from the peloton, but struggled to find room when moving through the congested breakaway group, and could only finish seventh and eighth respectively.
The result continues what has been a remarkable season for Gilbert, following a spring in which he won Amstel Gold, the Three Days of De Panne, and, most memorably of all, the Tour of Flanders from a huge solo break.
There was a flurry of attacks in the final lap, the most enduring being a three-man group that formed just after the summit of the fourth and final climb of Horben. Jan Bakelants (Ag2r) instigated the move, attacking over the summit immediately after another move had been neutralised, and was joined by Rui Costa (UAE Emirates) and Damiano Caruso (BMC).
The trio worked well together and opened up a small gap over the peloton that at one point reached 30 seconds. However, they were ultimately caught with just over 5km to go, by a Bora-Hansgrohe-lead peloton keen to set Peter Sagan up for the stage win.
Greg Van Avermaet was next to make a move after the catch was made, but was quickly neutralised.
Earlier in the day, a break of five went up the road at the start of the day, consisting of Nick van der Lijke (Roompot), Antoine Duchesne (Direct Energie), Nicholas Dougall (Dimension Data), Conor Dunne and Lasse Norman Hansen (both Aqua Blue Sport). They were caught just before the crash involving Dennis.
Hansen was first over the climb on each of its first three ascents, and therefore becomes leader of the mountains classification.
In an earlier crash prior to the incident that spelt doom for Dennis, Jonas Koch (CCC-Sprandi-Polkowice) required helicopter to lift him off the road after hurting himself badly.
Tour de Suisse 2017 stage two, Cham – Cham (172.7km)
1 Philippe Gilbert (Bel) Quick-Step Floors, in 4-22-36
2 Patrick Bevin (NZl) Cannondale-Drapac
3 Anthony Roux (Fra) FDJ
4 Michael Albasini (Swi) Orica-Scott
5 Matteo Trentin (Ita) Quick-Step Floors
6 Marcus Burghardt (Ger) Bora-Hansgrohe
7 Niccolo Bonifazio (Ita) Bahrain-Merida
8 Peter Sagan (Svk) Bora-Hansgrohe
9 Valerio Conti (Ita) Team UAE Emirates
10 Michael Matthews (Aus) Team Sunweb
Overall classification after stage two
1 Stefan Küng (Swi) BMC Racing Team, in 4-29-08
2 Michael Matthews (Aus) Team Sunweb, at 1s
3 Tom Dumoulin (Ned) Team Sunweb, st
4 Lars Boom (Ned) Team LottoNl-Jumbo, at 4s
5 Peter Sagan (Svk) Bora-Hansgrohe, at 8s
6 Damiano Caruso (Ita) BMC Racing Team, at 10s
7 Michael Albasini (Swi) Orica-Scott, at 11s
8 Hugo Houle (Can) AG2R La Mondiale, at 12s
9 Patrick Bevin (NZl) Cannondale-Drapac, at 13s
10 Matteo Trentin (Ita) Quick-Step Floors, at 14s