The win by Djokovic, now 2-0 in the Gold Group, also eliminated Jo-Wilfried Tsonga of France, who earlier lost to Juan Martin del Potro of Argentina 7-6 (4), 7-6 (5) in the tournament for the top eight players in the world.
Davydenko (1-1) looked almost untouchable early. He broke Djokovic in the opening game and yielded only four points in his first four service games, leaving the third-ranked Serb increasingly frustrated and looking toward his supporters for answers.
Then Davydenko self-destructed. Serving for the first set at 5-4, the Russian double-faulted at 30-30 and sent a forehand wide to level the match.
In the tiebreaker, Davydenko handed the first four points to Djokovic with three forehand errors and a double-fault. Djokovic hit back-to-back aces to give himself a set point, and Davydenko double-faulted again.
Then it was Djokovic's turn to fall apart, winning only nine points in the second set. It was the first time that Djokovic lost a set 6-0 since the Estoril Open final in April 2007, when he rallied to beat Richard Gasquet.
"I had a very unexplainable lapse in the second set,'' Djokovic said. "It was very hard to come back. I was really nervous.''
The third set was on serve until Davydenko faltered again. Serving at 5-5, 40-30, he grimaced after hitting a sharply angled backhand volley wide, then sent a pair of forehands long for the break. Djokovic then held to finish the match.
With the crowd solidly behind him, Tsonga had 10 aces in his first four service games. But inconsistency - and solid play from Del Potro - plagued the Frenchman. One early stretch went: unforced error, ace, ace, double fault, unforced error.
"I played very good the important points in the second set, and that was the key to beat him,'' Del Potro said. "He's not too consistent. He made more errors.''
The two players, both making their Masters Cup debuts, exchanged early service breaks in both sets and never yielded more than two points in any other service game.
Tsonga, who sat out three months with a knee injury earlier in the year and had to win the Paris Masters nine days ago just to qualify, led 3-1 in the first tiebreaker but Del Potro ran off six of seven points, including a pair of service winners to finish off the set.
Del Potro, ranked 65th on July 7 before a 23-match winning streak helped carry him to No. 8, ripped a backhand winner on the run to pull ahead in the second tiebreaker 4-2.
An overhead winner set up triple match point at 6-3. Tsonga hit an ace and a service winner before knocking a forehand under pressure into the net to end it.
"I know he played better than me in the tiebreak,'' Tsonga said. "I miss some easy balls, and that's it.''
The 20-year-old Del Potro, plagued by a sore toe since the U.S. Open, is the youngest player in the field. He said he was trying to win while also trying to save some energy for Argentina's Davis Cup final against Spain on Nov. 21-23.
"For all tennis players, it's like a dream to be here,'' Del Potro said. "But also next week it will be another dream.''
Argentina's chances got a boost when top-ranked Rafael Nadal, who sat out the Shanghai event in hopes that the rest would allow him to lead Spain's team, announced late Monday that he would have to take off another three to six weeks.
Roger Federer and Andy Roddick, who lost their first matches in the Red Group, play each other Wednesday, while Andy Murray and Gilles Simon also play.
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