United States tennis icon Serena Williams has pulled off a massive upset at the US Open, defeating the world No. 2 in dramatic scenes.

The 40-year-old, competing in the last tournament of her stellar career, booked her spot in the third round after putting on an absolute clinic at Flushing Meadows.

The adoring home crowd at Arthur Ashe Stadium, which featured a plethora of A-list celebrities and a record attendance of 29,959, went berserk when Williams broke serve in ninth game to take a 5-4 lead in the opening set with her serve to come.

But the 23-time grand slam champion succumbed to the pressure, double faulting in the following game to gift Kontaveit a break and put the set back on serve.

The atmosphere shifted dramatically when Williams' second serve went long, with the New York crowd left in stunned silence.

The first set eventually went to a tiebreak and Williams held her nerve to secure the opener with a powerful ace. American golf champion Tiger Woods celebrated with a roar and a clenched fist.

Kontaveit showed her class early in the second set by breaking serve twice and taking a 3-0 lead, but Williams immediately got one on the breaks back to keep herself in the contest.

And the topsy-turvy second set had another twist, with the Estonian breaking serve for a third time to stamp her authority over the match.

Williams seemingly start conserving energy for the decisive set as Kontaveit cruised to a 6-2 victory in the second, getting the job done with an ace.

Things were getting tense at Flushing Meadows, but Williams rediscovered her mojo to secure an early break in the third set.

And Kontaveit wasn't budging, winning four consecutive points in the following game to break from 0-40 down and put the final set back on serve.

But Williams proved why she's a champion, breaking serve in the fourth game to go 3-1 ahead with her serve to come; the energy was electrifying.

The next four game remained on serve before Williams broke to love at 5-2 to claim an unforgettable victory 7-6 2-6 6-2.

After a glittering 27-year professional career, Williams entered this year's US Open preparing to bid farewell to tennis at the major tournament where it all began.

The Williams swansong started on Tuesday morning when she claimed a straight sets 6-3 6-4 win over world No. 80 Danka Kovinic in the first round.

Williams said she didn't expect the tributes and the reaction to her retirement, calling the crowd "crazy".

"When I step out on the court, I just want to do the best that I can do on that particular day," she said.

"It's been such a hard decision (retirement). I think when you're passionate about something and love something so much, it's always hard to walk away. Sometimes I think it's harder to walk away than not and that's been the case for me."