The bout had many people calling for it to be stopped early, including the commentary team which featured dual weight class champion Daniel Cormier.
Hooker, ranked at No.14, started the bout well and traded shots with Barboza, however the power of Barboza's strikes eventually got the better of the Kiwi - who took a spinning back kick clean to the abdomen which was a turning point in the contest.
He was checked by medical staff at the end of the second round after sustaining a number of powerful strikes, and was judged to be in condition to fight on.
However, midway through the third round Barboza was able to get the stoppage.
"He's a tough guy...one of the best in the world," Barboza said of Hooker when speaking to UFC media after the bout. "He's a tough guy, he's young and he has a good future.
"I really landed good shots, clean with the punches and with the legs but, like I said, I fight with the best guys in the world and he's one of the best. It was a good fight."
The loss was Hooker's first since making the jump up a weight class from featherweight to lightweight and saw his professional record go to 17-8-0.