The eagerly awaited match pitted Davenport, who was 19-1 with three titles since returning to the tour, against a former Grand Slam winner for the first time since she took maternity leave to give birth to son Jagger last June.
"From the day I found out, I started working for this game," Sharapova said of the draw. "I approached it like it's a final."
In the following match on center court, sixth-ranked Andy Roddick advanced with 6-2, 6-2, 6-4 victory over Michael Berrer. Second-ranked Rafael Nadal breezed to a straight-set win.
Earlier, Serena Williams and top-ranked Justine Henin scored straight-set victories to move a step closer to a possible semifinal showdown. No. 18 Amelie Mauresmo, who won the 2006 Australian title, needed 10 match points to beat Yaroslava Shvedova of Russia.
Locked in and sharp from the start, Sharapova yielded only six points in the first five games, keeping Davenport constantly on the run. Nothing much was going right for Davenport, who watched serves returned for winners and passing shots zip past when she ventured to the net.
The crowd, which started evenly divided between the players, largely shifted to underdog Davenport and cheered loudly when she finally held for her first game to pull to 5-1.
"I wish I could've given them a little more to cheer for," Davenport said. "Obviously I wanted to play a little better than I did in the beginning, but she was really aggressive on me.
"She was head and shoulders better than I was. I felt like I never really hit the ball that well, and I'm in trouble when I'm not hitting the ball well."
In the second set, Davenport started showing flashes of the skills that carried her to three Grand Slam titles and the No. 1 ranking. She fended off triple-break point while serving at 3-3 before Sharapova, who lost last year's final to Serena Williams, cashed a fourth with a sharply angled backhand service return winner.
Sharapova, who never gave up more than two points in her eight service games, held, then broke Davenport for the fourth time when the American netted a forehand on Sharapova's second match point.
"Obviously, I'm disappointed with the way this match went and this tournament went, but I have to look big picture at this point in my career, and so far it's gone pretty well the last few months," Davenport said. "I still feel like I'm the luckiest girl in the world."
Williams was the aggressor in a 6-3, 6-1 win over Yuan Meng, hitting so hard on nearly every shot that she seemed to be trying to reduce the ball to bits of fluff.
"My game was definitely a good game to play someone like her," Williams said. "I really enjoy the battle."
Pushing her record at Melbourne Park to 25-1 since 2003, Williams ran off the last four games, breaking Yuan when the Chinese player let a passing shot drop on match point, only to see it clip the line.
Henin committed only five unforced errors to take the first set against Russia's Olga Poutchkova in 22 minutes. But hard-hitting Poutchkova began picking up her game, and Henin appeared to be bothered by gusty winds that made every service toss an adventure, complicated on one side by a bright midday sun.
Despite five double-faults in her first two service games of the second set, Henin advanced to her 30th straight victory.
"I played a very good first set, then I lost some intensity," said Henin, who skipped Melbourne last year because she was going through a divorce and had to default in the 2006 final because of a stomach illness.
Roddick, with momentum from leading the U.S. team to victory in the Davis Cup final and winning last week's exhibition in Kooyong, conceded only eight points in his first eight service games.
Berrer finally broke Roddick's first service game of the third set. Roddick saved two break points, almost completely missed a service return from the German on the third, then slammed his racket to the court.
After Berrer held to pull ahead 3-0, Roddick ran off the next five games, getting the deciding break when the German badly misjudged an easy overhead and shanked it into the net to hand Roddick a 4-3 lead.
Berrer fended off four match points while serving at 3-5. Then Roddick easily held to finish off the match.
"I had fun out there tonight," Roddick said. "If he was getting one step into the court, even if he was behind the baseline, it seemed like he was charging. It was pretty cold, the ball wasn't going anywhere, so I figured maybe I would let him take his chances. Over the long haul, I felt like I might get ahead."
Nadal routed Frenchman Florent Serra 6-0, 6-2, 6-2.
Seeking his first Grand Slam title on a surface other than the French Open's clay, Nadal's heavy slice and topspin are well suited to the new, blue Plexicushion surface here. He yielded only 10 points while racing through the first set in 22 minutes, committing only four unforced errors.
Unseeded Mardy Fish ousted No. 11 Tommy Robredo, but two other Americans lost: Jesse Levine to No. 24 Jarkko Nieminen and Sam Warburg to Frenchman Jo-Wilfried Tsonga, who earlier beat No. 9 Andy Murray. No. 4 Nikolay Davydenko, No. 14 Mikhail Youzhny, No. 20 Ivo Karlovic and No. 23 Paul-Henri Mathieu also advanced.
Other women advancing included third-seeded Jelena Jankovic, No. 11 Elena Dementieva, No. 12 Nicole Vaidisova and No. 17 Shahar Peer. But 2004 semifinalist Patty Schnyder, seeded 15th, lost to Australia's Casey Dellacqua.
