The two-time grand slam champion was challenged by Italian Lorenzo Sonego on Thursday, conceding the second set before moving on with a 6-4 6-7 (3-7) 6-3 7-6 (7-3) victory.
Alcaraz's brute strength and incredible shot-making were on full show to the Rod Laver Arena crowd, as the three-hour and 25-minute spectacle bled into the night session.
"I'm really happy with my performance today," the 20-year-old said after notching his 200th tour-level match.
"Both of us played at such a great level, high intensity. The match was a little bit tricky with the wind and the sun ... it was tough to bring your best."
The result equals his best result at Melbourne Park, a third-round exit in 2022.
Alcaraz has reached at least the semi-finals in the other three majors.
Thursday's contest looked to be beyond Sonego after he dropped the third set and went down an early break in the fourth.
But the Italian world No.46 refused to go quietly, immediately breaking Alcaraz for the first time in the match with a pinpoint lob that even the speedy Spaniard could not chase down.
Sonego had previously beaten Alcaraz in their only other meeting at the Cincinnati 1000 in 2021, when the latter was still ranked outside the top 50.
Much has changed since then, with the now second seed winning the US Open in 2022 and Wimbledon in 2023 on his way to becoming No.1 in the world.
Alcaraz can recapture top spot in the rankings from Novak Djokovic with this year's Australian Open crown, after missing the 2023 tournament through injury.
Alexander Zverev was taken to the limit, winning a five-setter in the Australian Open second round. (Joel Carrett/AAP PHOTOS)
Earlier, Olympic champion Alexander Zverev snatched victory from the jaws of defeat with a five-set marathon win over Lukas Klein.
In a see-sawing second-round encounter on John Cain Arena, Zverev held his nerve to oust the Slovakian qualifier 7-5 3-6 4-6 7-6 (7-5) 7-6 (10-7).
The pair traded blows for four hours and 30 minutes on Thursday, before the German star won out in a nail-biting super tiebreak.
"To be honest, he probably deserved to win the match more than me today," Zverev said.
"His ranking is not valid to how he's playing right now."
World No.163 Klein won his first grand slam match at the Open on Tuesday, triumphing over South Korean Kwon Soon-woo.
A semi-finalist at Melbourne Park in 2020, Zverev was two points away from elimination when serving to stay in the match at 5-6 down in the fifth set, but he did not blink.
He let out a pressure-relieving scream after booking a third-round clash with American Alex Michelsen, a 4-6 6-3 6-4 6-4 winner over Czech No.32 seed Jiri Lehecka.
Zverev came under scrutiny this week when German news outlets reported he would stand trial in May, during the French Open, after he was ordered to pay fines of €450,000 ($A750,000) over an alleged assault of a former partner.
The sixth seed contested the fine, forcing the case to trial.
Zverev was bemused when the only English-language question in Thursday's post-match press conference centred on whether he planned to attend the trial in person.
"Wow. That's a question," he replied.
"I just played four hours, 40 minutes ... I've got no idea."
In other men's results on Thursday, Australian Max Purcell pushed No.11 seed Casper Ruud all the way in a gallant 6-3 6-7 (5-7) 6-3 3-6 7-6 (10-7) loss.
Ruud will next face Brit seed Cameron Norrie, who turned the tables on Italian Giulio Zeppieri after falling two sets behind to win 3-6 6-7 (4-7) 6-2 6-4 6-4.
Fellow Brit Jack Draper took a set from last year's Open semi-finalist and American 14th seed Tommy Paul, but ultimately fell 6-2 3-6 6-3 7-5, while Chinese wildcard Juncheng Shang ended Indian qualifier Sumit Nagal's tournament 2-6 6-3 7-5 6-4.
Spain's Alejandro Davidovich Fokina was among three men's seeds to get the flick on day five, punted by Portugal's Nuno Borges 7-6 (9-7) 6-3 6-3.
Serb Miomir Kecmanovic sent big-serving German No.24 seed Jan-Lennard Struff packing with a gruelling 6-4 1-6 7-6 (7-5) 1-6 7-6 (11-9) victory.
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