In her first tournament since losing in the semi-finals of the US Open four months ago, Williams was bundled out 6-4, 6-7 (7/3), 6-4 by the world number 72 in a two-hour, 13-minute arm wrestle.
Williams was looking for a bold showing in Auckland, both to prepare for the Australian Open and to celebrate her New Year engagement to Reddit co-founder Alexis Ohanian.
After blaming rust for her sluggish first-round win over Pauline Parmentier on Tuesday, Williams succumbed to repeated unforced errors against Brengle.
She started with an ace only to follow up with a double fault which exemplified the inconsistent nature of her game in the swirling wind.
Brengle dropped her second service game but at 4-1 down reeled off five consecutive games to take the first set.
There was a service break each in the second set in which Williams held and lost five set points before going on to take the tie-break 7-3.
The final set went with serve until Williams double faulted when serving to stay in the match at 4-5.