Microsoft said server issues were behind the incident that also affected its Copilot AI assistant and that a broader roll-out of software fixes was starting to stabilise the system.
It said it was not aware of any malicious activity and ruled out artificial intelligence as the cause.
Outlook and Teams are two of the most widely used workplace applications with hundreds of millions of users.
The outage prevented people from performing essential functions such as sending emails, managing calendars and hosting virtual meetings.
Organisations that host Microsoft services on their own servers, rather than in the cloud, were somewhat spared.
The outage, reports of which started climbing about 5.25pm GMT on Thursday (4.25am AEDT on Friday) according to Ookla, is one of the longest in Microsoft's history and the second disruption to its services this year.
"We are deeply sorry for the disruption this incident has caused our customers and partners," the company said in its latest update.
"We know the trust they place in our services and take that responsibility extremely seriously. We are seeing broad recovery and stability across our services."
Microsoft said the outage specifically hit features tied to Exchange Online - its cloud-based email and scheduling hub - leaving unconnected applications operational.
The incident deepens questions about the global reliance on a handful of major tech companies that supply both the essential software and the cloud infrastructure that underpins it.
Still, some analysts have questioned whether such incidents can push customers on to rivals due to the steep switching costs of replacing tools embedded so deeply in daily operations.
Microsoft faced an outage with its 365 services in January this year and also in October last year.
Last month, it reported an outage of its Azure cloud platform that affected its suite of productivity software, and a range of industries worldwide.
A spokesperson for the United Kingdom government said it was working with Microsoft to find a solution for the outage that hit organisations such as the National Health Service and London's Metropolitan Police.
Lack of access emails and other services was affecting the Metropolitan Police's ability to report some crimes online although its ability to respond to calls was not affected.
The NHS said its local services were turning to alternate measures such as using IT systems or paper records.
For businesses, the fallout was widespread.
European exchange operator Euronext reported email disruptions, UK insurer Aviva activated backups for its earnings calls and Danish shipping giant Maersk warned customers of delayed updates.
US artificial intelligence giants OpenAI and Anthropic also faced issues with Microsoft connectors while Indian airlines IndiGo, Akasa Air and Air India said their email support services were affected.
The outage also disrupted fund management at Taiwanese securities firms, life insurers and investment trust companies.
One of the companies went as far as cancelling a bond repurchase transaction, a source familiar with the situation told Reuters.
Another Taiwanese financial company resorted to using fax to confirm trades, a second source said.
with DPA and AP
