No. 19-seeded Ekaterina Makarova had a 7-5, 6-4 win in the opening match Sunday on Rod Laver Arena, taking out the highest seed to tumble so far at the season's first major.
Makarova beat Williams in the fourth round in 2012 at Melbourne Park and went on to reach the quarterfinals, which remains her best result at a Grand Slam. Kerber and Makarova were two of only four women in 2012 to beat Williams, who lost only one match in the second half of last season as she collected titles at Wimbledon, the London Olympics, the U.S. Open and the WTA Championships.
"Seems like it was the same this year and last year. Unbelievable feeling," Makarova said. "I really like to play here. The crowd is so perfect."
In the first men's match Sunday, fourth-seeded David Ferrer had a 6-2, 6-1, 6-4 win over No. 16 Kei Nishikori of Japan to reach the quarterfinals, where he could meet fellow Spaniard Nicolas Almagro.
Nishikori had won two of his previous three matches with Ferrer and was a quarterfinalist in Australia last year, but struggled with 65 unforced errors in the 2-hour, 10-minute match.
If Almagro beats No. 8 Janko Tipsaveric later Sunday, it would set up the first all-Spanish quarterfinal at the Australian Open since 2011, when Ferrer ended Rafael Nadal's bid for a sequence of four consecutive major titles.
No. 1-ranked Novak Djokovic, who has the last two Australian titles, had a night match against No. 15 Stanislas Wawrinka.
Kerber, a Wimbledon semifinalist last year, had beaten Makarova in their previous three matches and went in as favourite at Melbourne Park. She had trouble with her back, but said it didn't affect the outcome of the match, adding that Makarova was capable going further in the tournament.
"I think if she played very well she can, yeah, beat also top players," Kerber said.
The 24-year-old Makarova could play fellow Russian, No. 2-ranked Maria Sharapova, in the quarterfinals — the same stage they met last year. Sharapova can advance by beating playing Belgium's Kirsten Flipkens later Sunday in the fourth round.
"Actually I really want to play against Maria because I lost here last year in the quarters and I play a lot of times against her last year," Makarova said. "Now I'm pretty confident and I like my game.
"Last year I was so surprised ... this year I'm a little bit used to it, so I think I'll be ready to play a good game."
Another pair who met here last year played out a similar result on Saturday night, with No. 2-ranked Roger Federer knocking Bernard Tomic out of the tournament in straight sets to end Australia's participation in either the men's or women's singles draws.
The bravado Tomic built by holding serve for 76 games leading into their third-round match dissolved in six points.
Federer gave the 20-year-old Aussie an instant reality check by breaking him in the very first game to set up a a 6-4, 7-6 (5), 6-1 win.
"I elected to serve, considering I was serving really well the last few weeks," said Tomic, who won his first ATP World Tour title at Sydney last week and had a win over No. 1-ranked Djokovic at an exhibition tournament in Perth at the start of the month. "Yeah ... that first service game was important. I lost it. Then I was like, 'Oh, no!'"
Federer, who has won four of his 17 Grand Slam titles at Melbourne Park, also beat Tomic in the fourth round here last year.
"It's not my favourite part of the job beating up on the hometown heroes," Federer told the crowd at Rod Laver Arena, where he has won four of his 17 Grand Slam titles. "But it's nice that you guys sort of invite me back every year."
Federer earned his 250th win at a Grand Slam event, the milestone sprinkled with some of his classic crisp volleys and trademark one-handed backhands. Federer won the first point of the match with a forehand winner, the first of three in that game, and Tomic only won two points before the Swiss star converted a service break in the first game.