Brad Davison scored 29 points for the Badgers, who negated North Carolina's size advantage by draining 13 of 27 3-pointers. The Badgers (18-12) had lost four of five entering the tournament.
Davison made 5 of 7 3-pointers and 10 of 15 shots overall. D'Mitrik Trice scored 21 points for Wisconsin, which advanced to play the South Region's top seed, Baylor, on Sunday.
Although Williams had won all 14 of his first-round games with Kansas and his first 15 with UNC, the loss by this uneven Tar Heels team was hardly a shock. North Carolina came in on a three-game winning streak but did not win four in a row all season.
Armando Bacot scored 15 points for UNC (18-11).
The Badgers entered with a 4-42 record at Mackey Arena, home of Big Ten rival Purdue. They looked right at home on Friday, shooting 51% from the field overall and 57% in the second half.
The game was tied at 16 before Wisconsin took control. Davison spun around, lost his defender, stopped and drained a 3-pointer that put the Badgers up 35-24 late in the first half.
Davison hit another 3 with 34 seconds left in the half to make it 40-24 and bring the boisterous Wisconsin fans to their feet. That score held until halftime, and the Wisconsin fans stood and cheered throughout the final seconds. They made quite a bit of noise -- the Badgers brought a larger group of fans than other schools because of the school's relatively close proximity to Purdue.
North Carolina chipped away with baskets in close before a 3-pointer by Wisconsin's Nate Reuvers rimmed out, then in, to push to advantage to 58-43 with 12 minutes to play.
The Tar Heels' loss coupled with Appalachian State's loss on Thursday night to Norfolk State leaves UNCG as the only North Carolina university left in the tournament. The Spartans play Florida State on Saturday.