Clinging to their faint and fading hopes in the postseason chase, New York fell to 4 1/2 games behind the Royals for the second American League Wild Card spot with eight regular-season games remaining.
"At this point, everything is pretty much a must-win," Brett Gardner said. "It's frustrating, but we've got eight games left. We'll keep playing hard, and the season is not over yet."
The losing pitcher was Chris Capuano, who allowed a first-inning RBI double to Edwin Encarnacion, then settled down until the Blue Jays batted around for three runs in the sixth inning, snapping their season-worst six-game losing skid.
Danny Valencia delivered the big hit of the afternoon in the decisive sixth, smacking a two-run ground-rule double over the wall in left field to break a personal 0-for-16 skid. John Mayberry Jr. added a sac fly as Capuano absorbed his first loss since Aug. 11.
"We've got a lead right there, we're in the second half of the ballgame, so that's tough," Capuano said. "You hate to let a game get away from you when you're kind of cruising like that."
Capuano issued two of his four free passes to set up Toronto's sixth-inning rally. Capuano permitted five hits, striking out two.
"The walks are what really hurt him in that inning," manager Joe Girardi said.
The day brought another injury for the Yankees, as Mark Teixeira exited after two at-bats with discomfort in his surgically repaired right wrist. Teixeira said that he planned to ask about another cortisone injection, and Carlos Beltran was unavailable to play due to pain in his right elbow; he could be done for the season.
"It's just bad timing right now," Teixeira said.
Jose Bautista slugged his 34th homer of the year, a solo shot to right field off Chase Whitley in the seventh, to swell Toronto's advantage. It was Bautista's 202nd career homer, tying him with George Bell for fourth place in franchise history.
The Yankees managed two runs in six innings off Toronto right-hander Marcus Stroman, grabbing the lead with three fourth-inning singles off Stroman, with Francisco Cervelli driving home Chase Headley on a knock to center field. Stroman scattered eight hits with no walks and seven strikeouts.
"He's got a good arm. He's a good young pitcher," Gardner said. "His fastball stays in the low to mid-90s, but it's pretty sneaky. It plays up. He's got a good breaking ball, and he tries to command both sides of the plate. He's just a real good pitcher."
Jeter reached base on a third-inning infield single, a ground ball that was smothered by second baseman Steve Tolleson, then advanced on a wild pitch before scoring on Brian McCann's opposite-field single.
The run was the 1,920th of Jeter's career, moving him past Alex Rodriguez for sole possession of ninth place on the all-time list.
"He's turned it around again," Girardi said. "You're seeing it again. The guy never stops fighting and believing in himself. Obviously, it's an attitude that's infectious. It's an attitude that you want in your players."
The crowd of 47,292 made it clear that they were sticking around for another look, holding their seats for Jeter's at-bat in the ninth.
Facing Brett Cecil, Jeter turned on a 97-mph fastball and ripped a one-out double to bring home Gardner and cut the Yankees' deficit to three runs. The RBI was Jeter's 1,303rd, lifting him past Miguel Tejada and into 100th place alone on the career RBIs list.
"Nothing he does surprises you anymore," Gardner said. "Obviously, what he's accomplished in his career is pretty special and he's definitely a guy you don't ever want to count out."
Brendan Ryan and Chris Young came to the plate later in the inning representing the tying run, but Toronto closer Casey Janssen put away the Yankees for his 24th save.
"There's not much left if we don't win out and other teams lose," Girardi said.