Higgins, four-times a world champion and the pre-tournament favourite, was beaten 4-3 by Jordan Brown, a 25-year-old unknown from Northern Ireland.
The Wishaw player missed the black at the end of the fifth frame and Brown potted it to lead 3-2. From Brown's break-off shot in the sixth, Higgins made a 91 break to force a decider but his highest break in the last was just 14 as he made a meek exit.
Stephen Maguire, the world No 7 from Milton, produced an excellent finish to reach the last 32. Maguire missed the blue to fall 2-1 behind to Englishman Dave Gilbert but conjured breaks of 74, 71 and 59 to set up a meeting with six-times world champion Steve Davis.
Dumbarton's Marcus Campbell joined him in the third round after coming from 3-1 down to edge 2005 world champion Shaun Murphy 4-3.
Glasgow's Anthony McGill won through to the last 16 on Friday and will face former British Open champion Nigel Bond this morning.
The Scottish Open is the fifth event of the Betfair European Tour. The top 25 in the order of merit will qualify for the Grand Finals in Galway in March.