At 5-0 and a point from winning the first set, Williams lined up in the ideal position for an overhead but then completely shanked it, spraying the ball wide. She screamed and put a hand over her face.
"It was an awkward smash. Then she missed one and I felt a little better," she said. "I felt like, 'Am I losing my mind out here?'
"Everyone sometimes hits a shot that's a little bit insane — you just got to allow yourself to get over it."
The 92nd-ranked Arn saved another set point before holding serve for the first time. Williams responded by winning the next five games before Arn held again. The match ended in 59 minutes Saturday, on consecutive double-faults by the Hungarian.
"I'm nowhere near where I want to be," said Williams, who has won her last 17 matches at Melbourne Park. "I'm just trying to play through it. A little rusty — just trying to play through my rust."
Williams has won the Australian Open five times, including back-to-back titles in 2009 and 2010. She didn't get to defend her title last year due to injury.
She badly sprained her left ankle in a warmup tournament at Brisbane two weeks ago, casting doubt again on her participation at Melbourne, but the 13-time major winner has shown no signs of being restricted in her first three matches — she has only conceded 11 games.
Next up she faces Ekaterina Makarova, who beat fellow Russian and seventh-seeded Vera Zvonareva earlier Saturday.
Williams is the only American left in the singles at the Australian Open after Vania King lost earlier to former French Open winner Ana Ivanovic — the last U.S. man exited the tournament Friday when John Isner lost in five sets to Spaniard Feliciano Lopez.
"I'm definitely going to keep representing the flag and doing the best I can," Williams said.
Novak Djokovic won the last Australian title at the beginning of a 41-match unbeaten run and finished 2011 with the No. 1-ranking after winning three of the four major titles. He next plays two-time Grand Slam winner Lleyton Hewitt, who reached the Round of 16 in his 16th Australian Open after beating No. 23-seeded Milos Raonic 4-6, 6-3, 7-6 (5), 6-3 on his third match point in the night match.
Against a Frenchman with a reputation for playing long matches, Djokovic wasn't exactly generous with his time.
Djokovic ensured Nicolas Mahut had a 30th birthday he won't quickly forget, routing him 6-0, 6-1, 6-1 in 1 hour, 14 minutes. Mahut lost the longest match in Grand Slam history over 11 hours, 5 minutes against Isner at Wimbledon in 2010.
Mahut was slowed by a left leg injury, but continued the match because the previous matches on Rod Laver Arena were over so quickly.
Djokovic commended him: "I wish him happy birthday and hopefully tonight he can enjoy it."
Djokovic has won 24 straight sets at the Australian Open, and has lost 10 games in his first three matches this time.
"I always played well in Australia. This is the only Grand Slam I won twice," he said. "The conditions are great. They're very suitable to my style of the game, day and night. I'm really looking forward to next week."
Jo-Wilfried Tsonga, who lost the 2008 final here to Djokovic, beat Frederico Gil of Portugal 6-2, 6-2, 6-2.
Like Djokovic, two-time Australian Open runner-up Andy Murray was also up against a French opponent and had no trouble advancing in straight sets, 6-4, 6-2, 6-0 over Michael Llodra.
In all six Frenchmen reached the third round, but only two of them advanced. Tsonga wasted hardly any time becoming the first of them to move into the round of 16 and will next play Kei Nishikori of Japan.
Nishikori became the first Japanese man to reach the fourth round in Melbourne in the Open era with a 4-6, 7-6 (3), 7-6 (4), 6-3 win over unseeded Frenchman Julien Benneteau.
Richard Gasquet, the fourth highest-ranked Frenchman at No. 18, knocked out ninth-seeded Janko Tipsarevic 6-3, 6-3, 6-1. He will play fifth-seeded David Ferrer, who lost the first four games against Juan Ignacio Chela before recovering to win 7-5, 6-2, 6-1.
In the biggest upset of the day, No. 92-ranked Mikhail Kukushkin of Kazakhstan held off 14th-seeded Gael Monfils of France 6-2, 7-5, 5-7, 1-6, 6-4.
On the women's side, two Wimbledon winners — Petra Kvitova and Maria Sharapova — advanced, but two top 10 players went out.
Zvonareva was beaten 7-6 (7), 6-1 by Makerova and No. 9 Marion Bartoli lost 6-3, 6-3 to Zheng Jie of China, a former Australian Open semifinalist.
Fourth-seeded Sharapova routed Germany's Angelique Kerber 6-1, 6-2 to continue her fantastic start to the tournament. The 2008 Australian champion has only dropped five games in three rounds and next plays No. 14 Sabine Lisicki, who beat two-time major winner Svetlana Kuznetsova 2-6, 6-4, 6-2.
Sharapova and Petra Kvitova are among the four women who can claim the No. 1 ranking at the end of the tournament. They could play each other in the semifinals, although Kvitova insisted she hasn't looked that far ahead.
Kvitova reached the round of 16 when Maria Kirilenko retired with a left thigh injury while trailing 6-0, 1-0 after 38 minutes.