Third seed Rune, de Minaur out of Shanghai Masters
World number five Rune never found his rhythm as he fell 6-0, 6-2 to 22-year-old American Brandon Nakashima, ranked 122nd in the world.
Despite the crowd enthusiastically cheering the Dane on, Nakashima made short work of Rune, defeating him in an hour and nine minutes.
"I had to play my best tennis to pull through," Nakashima said after the match.
"(Rune) is a player who has been at the top of the game for a while so I know against him it's going to be tough every time."
There was also an upset for Alex de Minaur, who fell 6-3, 7-5 to Hungarian Fabian Marozsan, who is ranked 91st to the Australian's 11th.
It was Marozsan's second high-profile knock-out of the year -- in May he inflicted a shock defeat on Carlos Alcaraz at the Italian Open.
Things went more to plan for a dominant Casper Ruud, who cruised through to the third round by easily dispatching Japan's Yoshihito Nishioka 7-5, 6-0.
Serbia's Dusan Lajovic continued his progress through the tournament after opponent Tallon Griekspoor retired from the match due to illness.
Alcaraz, the top seed in Shanghai, was mobbed by fans as he made his way to training Friday.
Italy's Jannik Sinner, who beat Alcaraz in Beijing earlier this week before going on to win the China Open, was also looking relaxed and smiling on the practice courts.