Poland's Swiatek came into the third round match against 50th-ranked Linda Noskova on an 18-match unbeaten run, targeting a first title at Melbourne Park.
But the tournament is turning into a graveyard for the seeds and the 22-year-old four-time major winner lost her way after winning the first set, going down 3-6, 6-3, 6-4.
"I'm speechless," said Czech player Noskova, who is at her first Australian Open. "I knew it was going to be an amazing match, but I didn't really think it would end up like this.
"I'm just really glad to get through."
Just three of the top 10 women's seeds remain in the draw at the end of the first week -- defending champion Aryna Sabalenka, Coco Gauff and Barbora Krejcikova.
With Swiatek's exit, world number two Sabalenka, from Belarus, is the red-hot favourite to defend her title after producing three dazzling performances.
A day after defending champion Novak Djokovic returned to top form, men's world number two Alcaraz laid down a marker in a lopsided contest against Chinese teenager Shang Juncheng lasting just 66 minutes.
The 20-year-old, playing a tour-level match against a player younger than himself for the first time in his career, was leading 6-1, 6-1, 1-0 when his 18-year-old opponent had to retire.
Shang entered the clash on Rod Laver Arena with his upper right thigh strapped and received treatment on the injury during the second set.
Dominant Alcaraz did not face a single break point to set up a last-16 meeting with Serbia's Miomir Kecmanovic, who saved two match points to beat last year's semi-finalist Tommy Paul 6-4, 3-6, 2-6, 7-6 (9/7), 6-0.
The Spanish second seed is vying with Djokovic for the number one ranking and if they both reach the final it will double as a straight shootout for the top spot.
Alcaraz, who missed last year's Australian Open with an injury, said it was "not the way anybody wants to move on" after the injury to Shang.
"This is the first time I have moved to the second week in Australia. It feels special."
Third seed Daniil Medvedev brushed off the after-effects of his 3:40 am finish in his second round match on Friday to beat Canada's Felix Auger-Aliassime in straight sets.
Medvedev, who faces Portugal's world number 69 Nuno Borges next, admitted the early-hours finish had taken its toll.
"It was not easy, I'm not feeling fresh, I'm not feeling 100 percent," said the Russian, who lost to Djokovic in the 2021 Melbourne Park final and Rafael Nadal a year later.
"It was tough, especially after the last match I had."
Borges, who beat 13th seed Grigor Dimitrov, is the first Portuguese player in the Open Era to reach the round of 16 at the Australian Open.
There were also wins for ninth seed Hubert Hurkacz and 19th seed Cameron Norrie, who put out 11th seed Casper Ruud.
Sixth seed Alexander Zverev was in evening action against unseeded American Alex Michelsen.
In the women's draw, two-time champion Victoria Azarenka rallied past fellow Grand Slam winner Jelena Ostapenko 6-1, 7-5, winning the last five games.
"I think I'm just ready to give whatever it takes," said Azarenka, who won back-to-back Australian Opens in 2012 and 2013.
"I love a challenge, I love the challenge whenever something is difficult, I love to do that, that makes me excited. I think that brings out the best in me," she added.
She will meet Ukrainian qualifier Dayana Yastremska for a place in the quarter-finals.
Chinese 12th seed Zheng Qinwen said she was inspired by Chinese great Li Na's win in the 2014 final after she beat compatriot Wang Yafan 6-4, 2-6, 7-6 (10/8).