The American sixth seed, a seven-time champion bidding for a record-equalling 24th Grand Slam singles crown, was clearly in pain early in the first set on a slippery Centre Court and limped off for treatment while 3-2 ahead.
Williams returned after a lengthy break but the distress was evident as she grimaced and wiped away tears before preparing to serve at 3-3 after Sasnovich had levelled.
The 39-year-old, who had been 3-1 up before the injury, sank to the grass sobbing, before being helped off the court.
"Brutal for @serenawilliams but centre court is extremely slippy out there. Not easy to move out there," Britain's Andy Murray said on Twitter.
Sasnovich, who practised her serve while Williams was getting treatment, commiserated with an opponent who had never gone out in the first round at Wimbledon in her previous 19 visits.
"I'm so sad for Serena, she's a great champion," said the world number 100. "It happens sometimes."
Eight-time men's singles champion Roger Federer expressed shock at Williams' departure and voiced concern about the surface, with the roof closed on Centre Court on a rainy afternoon.
His first-round opponent, France's Adrian Mannarino, also retired with a knee injury after a slip.
"I do feel it feels a tad more slippery maybe under the roof. I don't know if it's just a gut feeling. You do have to move very, very carefully out there. If you push too hard in the wrong moments, you do go down," Federer said.
"I feel for a lot of players, it's super key to get through those first two rounds because the grass is more slippery, it is more soft. As the tournament progresses, usually it gets harder and easier to move on."
