The 21-year-old patted the ball over the net several times when serving in his6-3 6-1 defeat by Mischa Zverev.
He also began walking back to his chair before a Zverev serve had landed.
Kyrgios has agreed to an ATP plan that he consult a sports psychologist, which would reduce the ban to three weeks.
The world number 14 said he was “truly sorry” and would “use this time off to improve on and off the court”.
He added: “I regret that my year is ending this way. I do understand and respect the decision by the ATP.
“The season has been a long one as I battled several injuries and other challenges towards the end of the summer.
“My body finally just gave out in Shanghai both physically and mentally.
“This is no excuse, and I know very well that I need to apologise to the fans.”
Kyrgios’ eight-week suspension would end on 15 January 2017, but by committing to the ATP’s “plan of care under the direction of a sports psychologist,” he will be able to return on 7 November.
Tennis Australia said Kyrgios has agreed to seek professional help and that it would continue to offer advice.
During his match against Zverev in Shanghai, Kyrgios also argued with a fan and received a code violation for swearing, after which he was fined $16,500 (£13,546) for breaching the ATP code of conduct.
Last week British world number two Andy Murray said he was “not convinced” a fine was the best solution.
“Sometimes players do need protecting. Sometimes he goes into press and says things he regrets,” said the Scot.
“In those situations he maybe needs to be guided a little bit better.”
World number one Novak Djokovic said: “I share the opinion of many players and many people in the tennis world that he’s one of the greatest talents the game has seen lately.”
In 2015, Kyrgios was banned for 28 days and fined $25,000 for making lewd remarks about Stan Wawrinka’s girlfriend during a Rogers Cup match in Montreal.
He was also criticised for his displays at Wimbledon and the US Open, and withdrew from Rio 2016 following a row with the Australian Olympic Committee.
Tennis correspondent Russell Fuller:
The length of the suspension is less significant than the fact this course of action has been chosen. The ATP will hope this shocks the Australian into addressing more seriously the issues which are holding back his career.
Kyrgios’ behaviour in Shanghai was unacceptable, as it has been on numerous occasions in the past. But reproach and sanction can only ever be part of the solution.
How many 21-year-olds outside the world of sport and entertainment would be able to deal with the stress of performing under such an unforgiving spotlight – and of living up to such high expectations so early?