Williams blew a 3-0 lead in the deciding set to crash out 2-6 6-4 6-4 at the hands of Russian Ekaterina Makarova.
Li started the Australian Open like a woman on a mission by brutally dispatching Croatian teenager Ana Konjuh 6-2 6-0 in just over an hour.
Former French Open champion Li, twice a losing finalist at Melbourne Park, simply bludgeoned her young opponent into submission with her fierce groundstrokes to lay down a marker for the other leading contenders for the women's title.
The fourth seed has become a big crowd favourite in Melbourne Park after her two runs to the final and was again well supported on Hisense Arena as she rode Konjuh's early challenge before racing away with the second set.
"This is my favourite grand slam, I always love playing in Melbourne," a smiling Li said before leaving court.
The 31-year-old next faces another promising young talent in the second round after 16-year-old qualifier Belinda Bencic beat 43-year-old Japanese Kimiko Date-Krumm 6-4 4-6 6-3 in a battle of the generations.
Makarova upset an injured Serena Williams in the fourth round of the 2012 tournament and completed a family double when 33-year-old Venus's serve fell apart in the third set on Margaret Court Arena.
"I think she played really well, and I think just my level was a little bit too up and down," said Venus.
Thai world number 88 Luksika Kumkhum sprang the biggest upset of the Australian Open's first day by bundling out sixth seed Petra Kvitova 6-2 1-6 6-4 in front of a frenetic crowd on Monday.
Serving at 4-3 in the third set to stay in the match, former Wimbledon champion Kvitova double-faulted to give her plucky opponent a chance to seal the match on serve but the Thai wavered to hand the break back.
Roared on by a vociferous crowd at the Margaret Court Arena, 20-year-old Kumkhum attacked Kvitova's serve with abandon to raise two match points in the next game and calmly sealed it on the first of them when the Czech pushed a return wide.
Kumkhum next plays German Mona Barthel.
Ninth-seed Angelique Kerber shook off a second-set blip to advance to the second round with a 6-3 0-6 6-2 win over local wildcard Jarmila Gajdosova.
After an error-strewn first set, the 26-year-old Gajdosova looked out of the match in the second when she rolled her left ankle on Rod Laver Arena and needed a medical timeout in the opening game.
The injury somehow sparked a comeback from Gajdosova, who exploited Kerber's weak service game, and local fans began to believe she might advance to the second round at Melbourne Park for the first time in nine attempts.
But Kerber, who lost in the Sydney International final to qualifier Tsvetana Pironkova on Friday, quickly forgot her second set troubles and raced through the decider in 31 minutes to set up a clash with Alla Kudryavtseva, who defeated France's Caroline Garcia 6-2 7-6(9).
Laura Robson was humbled 6-3 6-0 by Kirsten Flipkens and Heather Watson lost 7-5 3-6 6-3 to Daniela Hantuchova.
Australian Open women's singles round one results
1-Serena Williams (U.S.) beat Ashleigh Barty (Australia) 6-2 6-1
4-Li Na (China) beat Ana Konjuh (Croatia) 6-2 6-0
Luksika Kumkhum (Thailand) beat 6-Petra Kvitova (Czech Republic) 6-2 1-6 6-4
Julia Goerges (Germany) beat 7-Sara Errani (Italy) 6-3 6-2
9-Angelique Kerber (Germany) beat Jarmila Gajdosova (Australia) 6-3 0-6 6-2
Zheng Jie (China) beat 12-Roberta Vinci (Italy) 6-4 6-3
15-Sabine Lisicki (Germany) beat Mirjana Lucic-Baroni (Croatia) 6-2 6-1
17-Samantha Stosur (Australia) beat Klara Zakopalova (Czech Republic) 6-3 6-4
18-Kirsten Flipkens (Belgium) beat Laura Robson (Britain) 6-3 6-0
22-Ekaterina Makarova (Russia) beat Venus Williams (U.S.) 2-6 6-4 6-4
Alison Riske (U.S.) beat 23-Elena Vesnina (Russia) 6-2 6-2
26-Lucie Safarova (Czech Republic) beat Julia Glushko (Israel) 7-5 3-6 6-1
28-Flavia Pennetta (Italy) beat Alexandra Cadantu (Romania) 6-0 6-2
30-Eugenie Bouchard (Canada) beat Tang Haochen (China) 7-5 6-1
31-Daniela Hantuchova (Slovakia) beat Heather Watson (Britain) 7-5 3-6 6-3
Monica Niculescu (Romania) beat Shahar Peer (Israel) 6-4 6-1
Vesna Dolonc (Serbia) beat Lara Arruabarrena Vecino (Spain) 2-6 6-2 6-4
Mona Barthel (Germany) beat Zhang Shuai (China) 7-6(4) 6-3
Madison Keys (U.S.) beat Patricia Mayr-Achleitner (Austria) 6-2 6-7(8) 9-7
Annika Beck (Germany) beat Petra Martic (Croatia) 6-0 6-0
Virginie Razzano (France) beat Alison Van Uytvanck (Belgium) 7-6(3) 7-6(3)
Lucie Hradecka (Czech Republic) beat Donna Vekic (Croatia) 6-3 6-1
Casey Dellacqua (Australia) beat Vera Zvonareva (Russia) 6-2 6-2
Belinda Bencic (Switzerland) beat Kimiko Date-Krumm (Japan) 6-4 4-6 6-3
Alla Kudryavtseva (Russia) beat Caroline Garcia (France) 6-2 7-6(7)
Monica Puig (Puerto Rico) beat Anna Tatishvili (Georgia) 6-2 6-4
Irina Falconi (U.S.) beat Anabel Medina Garrigues (Spain) 6-3 6-1
Karolina Pliskova (Czech Republic) beat Pauline Parmentier (France) 6-0 6-1
Lauren Davis (U.S.) beat Sachia Vickery (U.S.) 6-3 6-3
Yanina Wickmayer (Belgium) beat Dinah Pfizenmaier (Germany) 7-6(5) 6-3
Tsvetana Pironkova (Bulgaria) beat Silvia Soler Espinosa (Spain) 6-3 6-2