The Florida-based 16-year-old has enjoyed a sensational run on the professional circuit since July last year when she reached the fourth round of Wimbledon in her first major championship appearance.
The 14th seed Kenin recovered from a set down to win convincingly 6-7 (5/7), 6-3, 6-0 and Gauff left the court crying.
Men's title-holder Novak Djokovic eased into the last 16 but elsewhere there were surprises all over Melbourne Park with Williams the biggest victim and Federer fighting back from 4-8 down in a fifth-set tie-break with John Millman.
American teenager Gauff, showing a tenacity which is becoming her trademark, clawed her way back from a set down to beat the experienced Sorana Cirstea 4-6, 6-3, 7-5.
Gauff defeated 2017 Roland Garros winner Jelena Ostapenko 6-3, 1-6, 6-2 in the Linz final for her maiden title.
World number one Osaka overpowered 15-year-old Gauff 6-3, 6-0 in 65 minutes to keep her title defence on track before sharing a warm embrace with an opponent overwhelmed by the occasion in the New York spotlight.
Reigning Wimbledon champion Simona Halep, meanwhile, crashed out early in New York for a third year running, blowing a match point in a tense three-set loss to 116th-ranked Taylor Townsend.
Rafael Nadal launched his tilt at a fourth US Open title Tuesday with a swift defeat of John Millman as other leading seeds in his half of the draw tumbled out in the first round.
Gauff is joined by four other teenagers among eight wildcard invitees: a trio of 17-year-old Americans in Caty McNally, Whitney Osuigwe and Katie Volynets and 16-year-old French player Diane Parry.
Eighth-ranked Stephens, the 2017 US Open champion, lost to Sweden's Rebecca Peterson 6-2, 7-5 while 15-year-old qualifier Gauff fell to Kazakhstan's 84th-ranked Zarina Diyas 6-4, 6-2.
The 15-year-old American saved three match points but was simply out-played by her more experienced opponent.
The American schoolgirl is the youngest player in the last 32 since Jennifer Capriati, also 15, went all the way to the semifinals 28 years ago.
