The 213 kilometers from Wanze to Arenberg contained seven stretches of cobblestones, which caused the peloton to split into small groups after a series of crashes and punctures.
Hushovd and Paris-Roubaix winner Cancellara were in a six-strong group which forged ahead to gain valuable time on their rivals.
Neither man is a serious contender to win the Tour de France, but the group contained two men who are, Cancellara's Saxo Bank teammate Andy Schleck and world champion Cadel Evans of Australia.
Hushovd took the sprint for the stage honors from Britain's Geraint Thomas, the Sky rider moving up to second overall for his efforts, with all six awarded the same time.
Behind them, Sky's Bradley Wiggins, fourth overall last year, improved his chances by finishing in the second group, 53 seconds down, with Russian Denis Menchov, a former winner of the Giro D'Italia and Tour of Spain.
Race favorite and defending champion Alberto Contador came in a further 20 seconds down after puncturing in the run in to the finish.
But seven-time Tour winner Armstrong lost valuable ground on his main rivals after a puncture held up the Radio Shack team leader as he conceded two minutes and eight seconds to the leading group.
He has slipped to 18th in the overall standings, two minutes 30 seconds behind Cancellara.
And for Schleck's brother and Saxo teammate Frank, the race is over after a heavy crash on the cobbles.
France's Sylvain Chavanel, who held the yellow jersey after winning the second stage, also punctured twice and lost too much time to remain in the lead.
The stage victory for Cervelo's Hushovd strengthens his grip on the points leader's green jersey with arch-rival Mark Cavendish of HTC-Columbia out of the placings.
Like Cancellara, Hushovd is a specialist in the Paris-Roubaix one-day classic which also features the feared pave cobblestones which caused such havoc to the Tour riders.
