Everything looked to be going to plan after a promising start when Hossam Ghaly was brought down by Ibrahima Sonko and Robbie Keane slotted the penalty home for a deserved lead after 22 minutes.
But it went slowly downhill from there. Left-back Nicky Shorey levelled matters with a 25-yarder beyond Paul Robinson in the 37th minute and Steve Sidwell fired the Royals into the lead from Glen Little's corner in first half stoppage time.
We enjoyed plenty of possession at the start of the second half but it came to little in terms of chances created until the 79th minute when Aaron Lennon played in Jermain Defoe only for the substitute shot into the side-netting. Seconds later, Kevin Doyle latched onto Leroy Lita's flick, fired across Robinson and home to secure a 3-1 win for the home side.
It meant the end of our 10-match unbeaten run in all competitions and dashed hopes of jumping up to seventh in the Premiership.
Martin reflected: "We did okay for the first part of the match and did everything we had to do - attacked them in the spaces and had a couple of chances and the penalty.
"Reading are a good team, strong at home, but I feel we were the better team in the first half, you could see that. We were a bit sloppy but we had more quality, but then they scored the two goals and you can't win if you play like that.
"It is frustrating because Reading have had a bad spell, even though it was against top sides and they have a terrific home record against other teams. Not many teams have win here in the last 12 months.
"We still knew if we played how we did last week and the weeks before, we would have a chance to take the three points, we needed them.
"If we'd have won everything would have been fine - in the last eight of the Carling Cup, doing well in Europe and seventh place in the league but we threw it away. I just think we had too many players below par."
Martin Jol cut a disappointed figure after our Premiership loss at Reading's Madejski Stadium on Sunday.