The game marked James' first return to South Beach since he left the Heat to join the Cavaliers in free agency this summer.
James scored a team-high 30 points and dished out eight assists, while Dwyane Wade paced Miami with 31 points and five assists.
The loss dropped Cleveland to 17-11, good for fifth place in the Eastern Conference. As SI.com's Ben Golliver noted, this is the worst start for a James-led team since 2007-08.
"We’re not that good right now," James said after the loss, according to ESPN.com. "We’ve won some really good games, we’ve lost some games, but we’re not that good right now"
The Cavaliers will face the Magic (11-20) on Friday in Orlando.