The Canadian looked in good shape when he took the opening set against Joao Sousa, but he was unable to complete the job as Sousa rallied to seal a 4-6 6-4 6-4 victory.
Shapovalov’s exit came after Gael Monfils was forced to withdraw due to a leg injury.
“I have had a pain for two days with my quadriceps and unfortunately I am not able to play the tournament,” said Monfils, who is replaced by Pablo Cuevas in the draw.
Former champion Philipp Kohlschreiber was in action, though, and he eased past Bradley Klahn 6-4 7-6 (7-2).
Monday also saw wins for Jan-Lennard Struff, Taylor Fritz, Cameron Norrie, Tennys Sandgren and Matteo Berrettini in Auckland
In Sydney, fifth seed and home hope Alex de Minaur made a winning start with a comprehensive 6-4 6-3 victory over Dusan Lajovic.
He will meet qualifier Reilly Opelka in the second round after his surprise triumph over Albert Ramos Vinolas, while Sam Querrey’s progression was aided by Malek Jaziri’s retirement with the American leading 6-1 4-1.
While De Minaur celebrated, his compatriot Matt Ebden was beaten by lucky loser Guido Andreozzi despite taking the first set. Monday also saw Yoshihito Nishioka beat Ryan Harrison in straight sets.
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