Henry, who was just two strokes off the pace after an opening 69, sagged to a three-over 75 for a level-par total of 144 and finished nine shots behind the halfway leader, Mikael Lundberg of Sweden.
Starting on the 10th tee, Henry was making steady progress at one-under for his round but the wheels came off on the run-in and the Scot leaked shots at the third and fifth before stumbling to a double-bogey six on the seventh.
Jack Doherty birdied two of his last five holes in a 71 to make the cut on 146 but Alastair Forsyth, Craig Lee, Jamie McLeary, Andrew McArthur and Peter Whiteford all joined the early casualty list.
England's Lee Slattery shrugged off a shoulder injury caused by a soft pillow to move into contention for a second European Tour title at the event in Atzenbrugg.
Slattery, 35, carded an eagle, five birdies and one bogey to return an impressive 66 at Diamond Country Club and lie just one shot behind playing partner Lundberg, who added a 68 to his opening 67.
"When I got out of bed this morning I did a few stretches and felt something tweak in my shoulder," said Slattery, who won the Madrid Masters in 2011. "It felt a bit sore, then it got progressively worse and on the way in on the bus I wasn't even sure whether or not I'd actually be able to play today."
Lundberg, meanwhile, whose previous wins came in the Russian Opens of 2005 and 2008, parred the first two holes but then birdied the next four in succession to move into a four-shot lead.
The 40-year-old from Helsingborg, who failed to record a single top-10 finish last season and had to regain his card for the third successive year at the qualifying school, dropped his first shot of the day after a clumsy chip on the eighth, before holing from 30 feet at the 12th for another birdie.
"I hit a lot of good shots early on and managed to make some putts, so that got my confidence up," he said. "It's a nice feeling when you get your distance control right with your wedges because it takes a lot of pressure off your putting."
Paraguay's Fabrizio Zanotti is two off the pace on seven under after a 68, with Korea's Sihwan Kim six under after also shooting 68 and defending champion Joost Luiten another stroke back following a flawless 67.
Home favourite Bernd Wiesberger, who needs to win to secure his place in the US Open next week - second place might also be good enough depending on other results - is six off the pace after a round of 70, marred by a three-putt bogey on the last.
The best recovery of the day was staged by Australian player Brett Rumford, who played his first four holes in five over par, only to score seven under in the remaining 14 to return a second round of 70 and finish one under par.