Canas rallied past Italian wild card Gianluca Naso 6-7 (8), 6-3, 6-2 Monday to set up a meeting with Federer, who had a first-round bye.
"I have nothing to lose,'' Canas said. "I'll try my best and even that might not be enough.''
The tournament began with an upset when ninth-seeded Richard Gasquet lost to Peruvian qualifier Luis Horna 6-4, 6-1 in the first match on center court.
Also, Steve Darcis beat former No. 3 Ivan Ljubicic 7-5, 7-6 (5) to set up a meeting with current No. 3 Novak Djokovic. Mardy Fish held off Michael Llodra 7-5, 3-6, 7-6 (2) and will now face Andy Roddick in all-American matchup.
No. 13 Juan Monaco dispatched Pablo Cuevas 6-0, 6-4 and No. 16 Andy Murray advanced when Juan Martin Del Potro retired with the Scot leading 5-7, 6-4, 1-0.
Also, Stanislas Wawrinka eliminated two-time Grand Slam winner Marat Safin 6-7 (5), 6-2, 6-1.
Canas has won three of his five meetings with Federer, including two straight in Masters Series events early last year upon the Argentine's return from a 15-month doping ban.
Federer got some measure of revenge by routing Canas 6-0, 6-3 in the Madrid Masters in October, and the pair have not played since.
All five of Federer's matches with Canas have came on hard courts. They have never met on clay, the surface of choice at the Foro Italico.
Federer leads a field featuring the top nine players in the rankings, including three-time defending champion Rafael Nadal.
Nadal is off to another perfect start to the clay-court season, winning consecutive titles at the Monte Carlo Masters and the Barcelona Open the past two weeks.
"Right now my confidence is very high,'' Nadal said. "But it's going to be very tough. It's my first time playing three weeks in a row on clay. Last year there was a week between Barcelona and Rome.''
The top eight seeded players have first-round byes in this tuneup for the French Open, which begins May 25.
In Monte Carlo, Nadal beat Federer for his first title of the season, improving his career clay-court record over his Swiss rival to 7-1.
"Federer is still the undisputed No. 1,'' Nadal said. "He is the toughest player for me.''
Federer will play Canas on Tuesday, with Nadal up against either Juan Carlos Ferrero or Nicolas Kiefer on Wednesday.
Also advancing Monday were Italian players Potito Starace and Andreas Seppi, Russian qualifier Evgeny Korolev, Nicolas Mahut, Igor Andreev and Lee Hyung-taik.
Gasquet played the 111th-ranked Horna even until surrendering a break late in the first set. The top French player then unraveled, missing 15 forehands and committing 27 unforced errors overall.
"After losing the first set, I lost all my confidence,'' Gasquet said. "I played my worst match of the year.''
The match lasted exactly one hour, and ended under light rain at the Foro Italico.
Last year, Gasquet finished in the top 10 for the first time, won a career-high 49 matches and posted his best Grand Slam performance by reaching the Wimbledon semifinals. This year, he is the only player in the top 10 yet to reach a quarterfinal match.
"I'm either way high or way low, and now I'm very low,'' Gasquet said, adding that he is not enjoying the sport right now.
"It's really difficult on the court. I need to win some matches and have fun.''
Horna beat Max Mirnyi and Mischa Zverev in qualifying.
"I knew he was capable, just today anyone could have beaten me,'' Gasquet said.
Nadal through to Barcelona Open quarters
Collins: Federer down but not out
