Spaniard Muguruza, the third seed, will need to sharpen up though after enduring a terrible start against 50th ranked teenager Ostapenko before the reigning French Open champion flicked the switch and won 2-6 6-2 6-1.
Fourth seed Dominika Cibulkova also fell to Russian Ekaterina Makarova 1-6 6-1 6-3 to leave the draw wide open.
American veteran Venus Williams proved more reliable with a 6-4 6-3 victory over Lesia Tsurenko of Ukraine.
Ninth seed Williams faces Britain's Johanna Konta in the last 16 while Muguruza faces Germany's Julia Goerges.
Kerber's defeat was perhaps not surprising as she suffered a hamstring injury in Madrid that forced her to pull out.
Not that Kontaveit was concerned by her opponent's woes.
"It's my first time beating the No.1 in the world, so, you know, I'm super excited," the world number 68 said.
Kontaveit plays Croatian veteran Mirjana Lucic-Baroni, who progressed when wildcard and three-times former champion Maria Sharapova retired with an injured leg on Tuesday.
(Editing by Martyn Herman)
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