Williams, who lost in the final to sister Serena last year, was stunned by Swiss star Belinda Bencic.
Melbourne: World number five Venus Williams and US Open champion Sloane Stephens were high-profile casualties on day one of the Australian Open Monday, but Roland Garros winner Jelena Ostapenko survived.
Williams, who lost in the final to sister Serena last year, was stunned by Swiss star Belinda Bencic, fresh from winning the Hopman Cup with Roger Federer.
The seven-time Grand Slam winner, in her 77th major, struggled against a player who had never before beaten her to go down 6-3, 7-5 and deprive the tournament of one of its biggest names.
It is the first time since 1997 that there will be neither of the Williams sisters in the second round, with Serena not playing after giving birth to her first child.
"I would like to have played someone easier," said Bencic.
"When I was a little girl watching on TV I would never imagine I would play them (the Williams)."
Also out of the opening Grand Slam of the year is American big-hitter CoCo Vandeweghe, a semi-finalist last year at Melbourne Park and Flushing Meadow. She slumped out to Hungary's Timea Babos 7-6 (7/4), 6-2.
Stephens' poor run since winning at Flushing Meadows in September continued, with the 13th seed crashing out to Chinese number two Zhang Shuai, who made the last eight two years ago.
The frustrated American put in an error-strewn performance on an overcast and windy Melbourne day and has now not won in seven matches.
"I'm not going to get too down," said Stephens after her 2-6, 7-6 (7/2), 6-2 defeat.
"I'm just going to stay positive and keep working to get back in the best shape and best place possible to do well for my next tournaments."