The world number one and defending champion lost the first five games and never recovered.
"Obviously things didn't go great out there, but she was a great counterpuncher today and hit a lot of balls back," Williams told reporters.
"I really knew nothing about her game going into the match, so she played a really good match against me today. And it just wasn't my day," added Williams.
The 20-year-old Cepelova had never beaten a top 15 player but held her nerve to pull off the biggest win of her career.
Williams, a 17-time grand slam champion, won the Sony Open on Saturday and had been on a roll coming to Charleston, South Carolina where she was a three-time champion.
Her sister Venus also had problems in her opening round match, losing seven consecutive games at one point, but recovered to beat Barbora Zahlavova 6-3 0-6 7-5.
Venus, who won the event in 2004, said she had been under the weather recently.
"I've actually been pretty sick lately, so it was a little rough out there today," she said. "I just kept fighting till the end."
In other early-round action, sixth seed Eugenie Bouchard breezed past Alla Kudryavtseva 6-2 6-0, while Australian seventh seed Samantha Stosur overcame a stiff challenge from Yaroslava Shvedova in a 6-3 5-7 6-1 triumph.
Eighth seed Sorana Cirstea was upset by Teliana Pereira in a 3-6 6-3 7-6(0) defeat.
(Writing by Jahmal Corner in Los Angeles; Editing by Peter Rutherford)