Williams had 13 of her 19 unforced errors in a sloppy opening set.
Meanwhile, Gustavo Kuerten, the 30th seed in the men's draw at the Australian Open and a former world No. 1, failed to get past the second round for the seventh straight year, falling to unheralded Czech Radek Stepanek, 5-7, 6-3, 7-5, 4-6, 6-3.
In the biggest second-round upset on the women's side, sixth-seeded Monica Seles, a four-time Australian Open champion, wasted a one-set lead in a 6-7 (6-8), 7-5, 6-3 loss to Czech qualifier Klara Koukalova.
Local favorite Lleyton Hewitt of Australia, the men's top seed, had a much easier time of things in his second-round match, coasting to a 6-1, 6-0, 6-1 rout of fellow Australian Todd Larkham.
On Tuesday, Williams came within three points of defeat before overcoming Emilie Loit of France, 3-6, 7-6 (7-5), 7-5, in the first round. Williams, the winner of the last three Grand Slam events, committed 55 unforced errors.
She is looking to become the first woman to win four consecutive Grand Slam events since Steffi Graf in 1993-94. Graf also is the last player to win all four majors in the same season.
Kuerten lost to Stepanek for the second time in as many career meetings. The Czech rallied past the three-time French Open champion in the first round of the Paris Open indoor event last year.
Kuerten failed to hold up his end in setting up a potential third-round meeting with Hewitt.
Seles appeared in good form after surrendering just one game in her first-round rout of Lubomira Kurhajcova, but in this match, she was unable to overcome a sprained left ankle and 62 unforced errors.
Seles, 29, was making her eighth appearance at Melbourne, where she captured her last of nine Grand Slam titles in 1996. Her Australian Open record slipped to 43-4.
Hewitt required only 74 minutes to record a second-round win after qualifier Magnus Larsson of Sweden extended him to five sets in the opening round.
Hewitt appears to have bounced back after coming close to a second straight first-round elimination at Melbourne. Last year, while recovering from chicken pox, he became the first No. 1 in the Open Era to lose in the first round.
Safin's sore right shoulder withstood yet another test Thursday. He had withdrawn last week from the quarterfinals at Sydney because he was unable to serve at full strength. He received treatment over the weekend and declared himself fit after practicing Sunday.
Safin was considered the favorite in last year's final against Thomas Johansson, but squandered a one-set lead and failed to capture a second career major.
Also winning in the top 16 were No. 6 Roger Federer of Switzerland, No. 7 Jiri Novak of the Czech Republic, ninth-seeded Andy Roddick, and No. 10 David Nalbandian of Argentina.
On the women's side, fourth seed Kim Clijsters recorded her 200th career singles match win in emphatic style, crushing Petra Mandula of Hungary, 6-0, 6-0, in just 33 minutes.
Clijsters dropped just 17 points to Mandula after losing only three games in the first round.
In addition, No. 8 Anastasia Myskina, No. 10 Chanda Rubin, 11th-seeded Magdalena Maleeva, No. 14 Anna Pistolesi, and 16th-seeded Nathalie Dechy also advanced.