The young Spaniard thrilled his home fans last year by defeating Novak Djokovic and Rafael Nadal on his way to the title, establishing himself as not just the future but the present of men's tennis.
He was in brilliant form last week as he successfully defended his Barcelona Open title but looked on the way out early in Madrid before turning the match around against the powerful Finn to win 2-6 6-4 6-2.
Errors flowed from the Alcaraz racket during the first set against the world No.41 Ruusuvuori.
Normally so composed, the 19-year-old threw his racket in frustration early in the second set but the turning point came in a long sixth game when he saved five break points before eventually holding.
He broke the Ruusuvuori serve in the next game and did not look back, going on to dominate the deciding set and move through to a clash with Grigor Dimitrov, who defeated Gregoire Barrere.
Casper Ruud's troubles continued, though, the third seed suffering another early defeat, this time 6-3 6-4 to Italian qualifier Matteo Arnaldi.
Fifth seed Andrey Rublev edged out Stan Wawrinka 7-5 6-4 while fellow Russian Karen Khachanov was a 6-3 3-6 6-3 winner against Thiago Monteiro.
Andy Murray has reacted to the disappointment of his defeat by Andrea Vassavori on Thursday by taking a wild card into next week's Challenger tournament in Aix-en-Provence.
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