Agassi, who became the oldest player to hold top spot in the world rankings by winning last month's U.S. Claycourt Championships in Houston, crushed Spain's David Ferrer in a one-sided first set.
But the Spaniard fought back to take the second on a tiebreak before breaking Agassi's serve in the ninth game of the decider and complete a 0-6, 7-6, 6-4 victory.
Other Spanish winners on the first day included Alberto Martin, who beat 10th seed Sjeng Schalken 2-6, 6-3, 6-1, seventh seed Albert Costa, a 6-4, 7-5 winner over Croatia's Zeljko Krajan, and Felix Mantilla, who knocked out 11th seed David Nalbandian 6-3, 1-6, 6-0.
In other matches, American Andy Roddick beat home favourite Andrea Gaudenzi 6-2, 6-3 while Britain's Tim Henman, struggling to regain form after a shoulder operation last year, lost to Argentinian claycourter Guillermo Coria 6-2, 6-1.
Agassi's defeat was the most surprising on day one.
Ferrer had lost in the first round of his previous five tournaments and had little hope of defeating the 33-year-old American, who had won four titles -- including the Australian Open in January -- so far this year.
The weight of Agassi's groundstrokes in the first set proved too much for the world number 60, who later conceded he was overwhelmed as much by the occasion as by his illustrious opponent.
VERY NERVOUS
"In the first set I was very nervous. I kept thinking: 'I'm playing against Andre Agassi on centre court'," Ferrer told reporters.
"But then I just told myself to stay calm, relax and enjoy it and I started playing a lot better."
Ferrer held his nerve to win a tight second set 7-3 on the tiebreak and, with the scores standing at 4-4 in the decider, Agassi crumbled.
After hoisting a tired backhand over the line to give his opponent a breakpoint, the American double-faulted, allowing Ferrer to serve for the match and set up a second-round meeting with Croatia's Ivan Ljubicic, who beat Xavier Malisse 6-2, 6-4.
"Since I was 12, Agassi has been my idol and I never thought I'd play on the same court as him," Ferrer added.
"When I saw the draw, it was like a dream. Today I played the game of my life."
But there were no problems for Roddick, who lost to Agassi in the final of last month's Houston tournament. The 20-year-old fifth seed brushed aside Italy's Andrea Gaudenzi with some powerful serving.
Britain's Henman, in an earlier match, struggled to find his rhythm against Coria, blasting forehands into the tramlines and missing easy volleys.
TOO STRONG
Although Henman has worked hard to adapt his serve-and-volley game to the slow clay courts of Europe, Coria proved too strong and consistent.
"You have to give him credit for the way he played, but that doesn't hide my disappointment," said the British number one.
"On any surface, but especially on clay, you can't afford to be as erratic as I was."
First-round defeat was bitterly disappointing, he added, but he was determined to be in better shape for the French Open in Paris at the end of the month, and for Wimbledon in June.
"I'm not hiding behind my shoulder," he said. "It felt 100 per cent today.
"These few weeks last year weren't so good for me either. I've just got to keep on working to try to use these tournaments as a stepping stone for the summer."
On Tuesday, second-seeded Juan Carlos Ferrero and Carlos Moya will continue Spain's challenge in the tournament with first round matches against Mark Philippoussis and Fernando Vicente.
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