Van Avermaet, who held the yellow jersey in the Tour de France last month, out-sprinted Denmark's Jakob Fuglsang and Rafal Majka to claim the one of the first gold medal of the games on the first full day of competition in Brazil.
The Pole was then reeled in inside the final two kilometres and had to settle for bronze as the fast-finishing Greg Van Avermaet - a two-time stage victor in the Tour de France - edged out Denmark's Jakob Fuglsang to take gold.
The race took place on a 237.5km course in and around Rio and Britain had looked perfectly placed when they started the 8.9km final climb to Vista Chinesa with Froome in the peloton and both Thomas and Yates in a lead group also containing Van Avermaet, Nibali, Fuglsang, Majka, Michal Kwiatkowski (Poland), Fabio Aru (Italy) and Andrey Zeits (Kazakhstan). Chris Froome, Joaquim Rodriguez, and Geraint Thomas were some of the riders that tried to join. I knew from the test event that final descent would be a deciding factor in the race and that's how it turned out.
But the Welshman fell victim to the same misfortune nearly immediately and eventually finished in 11th, one place ahead of Tour de France victor Chris Froome and four clear of another teammate in Adam Yates. "Everyone said all week it was for everyone else", Van Avermaet said.
"When I saw the crash I was confused about how many riders were still up the road", Van Avermaet, victor of Belgium's first Olympic gold medal since 2008, told reporters. That break was a really strong group, but we knew it wasn't enough riders to go all the way.
Britain's chances of Olympic road race glory ended up in the gutter as Greg van Avermaet of Belgium won gold on Saturday.
Normally famed for his descending Nibali surprisingly crashed out alongside Henao, with the drama seemingly setting up Majka to go clear to the finish.
"Sometimes, it pays not to take risks", Fugslang said.
"I don't know how I did not crash but somehow I made it through", he said.
"I dont think so - I love football, I try to follow it as much as possible, but cycling is the sport I prefer".
Nibali attacked late in the race, leading a three-man breakaway on a climb.
At least Froome has a second crack at gold in the time trial. Former world champion Michal Kwiatkowski of Poland was joined by Colombia's Jarlinson Pantano, a stage victor at last month's Tour de France, Switzerland's Michael Albasini and Simon Geschke of Germany - two riders who have also won Tour stages in the past.
Italian Tour de France victor Vincenzo Nibali crashed on a high speed descent 12 kilometers from the end and broke his collar bone.