Nicholson, a quarter-finalist at Alexandra Palace in 2009, was edged 3-2 by Dutchman Benito van de Pas in the opening contest of the afternoon session in London.
Van de Pas indicated his intentions by opening his debut appearance at the world championship with a maximum on his first visit, however Nicholson responded in kind.
That did not stop Van de Pas from routing the Australian 3-0 in the first set, although Nicholson was up to the challenge again - as he did not drop a leg in the second set.
After splitting the third and fourth sets, Van de Pas stepped up his game late - routing the deciding set to advance to a second-round meeting with Chisnall.
Englishman Chisnall eased past Van de Pas' countryman Ryan De Vreede 3-0 in the evening session.
The 2010 finalist averaged only 86.08, but eased into the last 32 with the loss of just three legs.
Welshman Mark Webster set up a second-round clash with 16-time world champion Phil Taylor, after downing Ron Meulenkamp 3-1.
Left-hander Webster has beaten Taylor just twice in 19 meetings, however one of those infamously came at the 2011 world championship in the quarter-finals.
Dean Winstanley came from two sets to one down to beat fellow Englishman Wayne Jones 3-2, winning the final two sets 3-1.
Another Englishman, Kevin Painter, saw off Russian qualifier Boris Koltsov - who beat Haruki Muramatsu 4-2 earlier in the session - 3-1.
Belgium's Kim Huybrechts and England's Ian White will go head-to-head in the second round, after respective victories.
Huybrechts saw off Northern Irishman Michael Mansell 3-0, while White surpassed the challenge of Greek qualifier John Michael - who earlier beat Jani Haavisto 4-1 to reach the first round - 3-1.
Sixth seed Wade averaged over 94 on his way to a 3-1 win over Wales' Jamie Lewis, and the Englishman could clash with 2014 BDO world champion Stephen Bunting in the second round.