Chang, a wild card entry, produced a strong effort against his countryman, but suffered a 6-4, 6-2 setback at the $380,000 indoor tennis event.
"I felt like I had a pretty good chance," Chang said. "Andre knows if I had the opportunity to beat him, he knows I would. He never let his guard down."
Chang turns 31 later this month and will be feted at each tournament he plays during his final season. He was participating in the first tournament of what will be the last year of a career that boasts a French Open championship and 33 other titles. Two of those tournament victories came at this event, including his first in 1988 when it was held in San Francisco.
"It was a fun match to play, you love to play in a packed house," said Chang, whose ranking has fallen below 100 after reaching No. 2. "In all honesty, I can walk away from this match feeling pretty good. Throughout my career, perseverance and heart made me believe I could exceed challenges, in doing what it takes for me to be where I am."
Chang next plays at Memphis, the second of 11 stops before his retirement after the U.S. Open.
It was fitting that his final year began with his first meeting with Agassi since 1999 in Toronto.
"It's amazing, having played him so long ago, it feels so familiar," said Agassi, who leads their series, 14-7. "It was extra emotional, he deserves a lot of respect. Michael gives his best, he's 100 percent, he's a symbol about what it means to be a competitor. He overcame some weaknesses, like being smaller. He puts in a lot of work."
The two came up through the ranks together, and while Chang tasted Grand Slam success first at Roland Garros, Agassi has had longevity. He is coming off his eighth career Grand Slam last month at the Australian Open.
"I feel excited, I have a good sense of where I am," Agassi said. "It's something I'm very proud of. You have to be healthy, your body has to hold up. You have to stay eager. These days, I don't take any match for granted."
Agassi, 32, who was dominant in Melbourne, is hoping to tie John McEnroe's Open-era record of five titles at San Jose. Last year, Agassi was beaten in the final by Lleyton Hewitt.
Also Tuesday, fourth-seeded Jan-Michael Gambill of the United States routed qualifier Todd Reid of Australia, 6-2, 6-0, and No. 6 Davide Sanguinetti of Italy overcame Zeljko Krajan of Croatia, 6-2, 6-7 (9-11), 6-1.
Two more Americans advanced to the second round.
Robby Ginepri rallied past Kristian Pless of Denmark, 4-6, 6-1, 6-4, and qualifier Paul Goldstein beat Juan Balcells of Spain, 6-2, 2-6, 6-3.
Also, Mark Philippoussis of Australia posted a 3-6, 6-3, 6-3 victory over Jean-Rene Lisnard of France.