It marked Ruud's first victory over the Spaniard in five career meetings and the result could make it difficult for Alcaraz to advance from the round-robin stage at the season-ending event for the year's top eight players.
"I didn't feel well on court," Alcaraz said.
"A few days before coming here, I got sick at home ... This morning, I feel uncomfortable in the stomach."
Later on Monday night, second-ranked Alexander Zverev began his bid for a third ATP Finals title by beating Andrey Rublev 6-4 6-4 in the other opening round match of the group named after Australian great John Newcombe.
Zverev, who won the finals in 2018 in London and 2021 in Turin, extended his winning streak to six matches and a Tour-leading 67th victory of the season.
The German triumphed in just 72 minutes, sending down nine aces a week on from his Paris Masters win.
World No.8 Rublev is making his fifth consecutive appearance at the finals but hasn't won a match at the event since 2022.
Alexander Zverev enjoyed winning this point against Russia's Andrey Rublev. (AP PHOTO)
Alcaraz won the French Open and Wimbledon this year to boost his career total to four majors, but he struggled at the Paris Masters recently and dropped behind Zverev to No.3 in the rankings this week.
World No.7 Ruud saved break points in the opening game but dominated the first set from then on as surprising errors flowed from the Spaniard's racket.
Alcaraz responded positively to move 5-2 ahead in the second set and was two points from levelling the match only to capitulate.
He dropped serve at 5-3 and looked forlorn as Norwegian Ruud roared to victory, winning the last five games.
"It's only one match but it's definitely one of the best wins of the season for me in terms of who I'm playing, his level, his ranking," Ruud said.
"We will see Carlos play better tennis than he did today but I took care of my chances and it was a great win for me - hopefully I can build on it."
Besides illness Alcaraz blamed inexperience on the surface and mental exhaustion.
"I'm tired mentally," Alcaraz said.
"Obviously a lot of matches, really tight schedule, really demanding year with not too many days off.
"I have no experience playing on indoor courts.
"I'll be a really good player on indoor courts, I'm sure about it. But I think it's about time, about getting experience ... A lot of players are better than me on indoor court."
On Sunday, in the Ilie Nastase group, Australia's Alex de Minaur lost to top-ranked Jannik Sinner and US Open finalist Taylor Fritz beat Daniil Medvedev. De Minaur plays Medvedev in his second match on Tuesday.
The top two finishers from each group advance to the last four.
With agencies.
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