Nadal coolly dispatched American qualifier Ryan Sweeting 6-2, 6-1, 6-1 at Rod Laver Arena, joining women's favourite Kim Clijsters in the third round just hours after his arch-rival Roger Federer scraped past Gilles Simon.
Britain's Andy Murray, the world number five, also beat Ukrainian Illya Marchenko in straight sets to remain on course for his second final at Melbourne Park.
Nadal said he had now shaken a virus which laid him low in Qatar as he bids to hold all four major titles for the first time since 1969, a feat which would eclipse even the illustrious Federer.
"Every day I feel better and I am now totally recovered," the Spaniard said.
Nadal, forced out injured last year as defending champion, is on a 23-match Grand Slam streak after last year winning the French Open, Wimbledon and his first US Open. He won his opener here 6-0, 5-0 when Marcos Daniel retired hurt.
Belgium's Clijsters also dropped her first games of the tournament - after a 6-0, 6-0 whitewash of Dinara Safina in the first round - as she saw off Spaniard Carla Suarez Navarro 6-1, 6-3.
The US Open champion, who has an outside chance of regaining the top ranking here, said she was delighted with her form and was not contemplating last year's third-round disaster, when she suffered her heaviest Grand Slam defeat.
"I don't think I've ever played a match like that. So it was very easy in a way to also forget about it, as well," she said of 2010's 6-0, 6-1 reverse to Nadia Petrova.
"If that would be something that would occur more often, it would be in my mind. I would feel like I had to do something about it."
China's Peng Shuai handed out the tournament's biggest shock when she downed former number one Jelena Jankovic 7-6 (7/3), 6-3 to equal her best Grand Slam performance. She will meet Japan's Ayumi Morita in the third round.
Russian second seed Vera Zvonareva survived an early onslaught from Serbia's Bojana Jovanovski before winning 2-6, 6-3, 6-1, keeping her on course for her third successive Grand Slam final.
Australia's French Open finalist Samantha Stosur kept local hopes alive along with wildcard Bernard Tomic, 18, who was pinching himself after beating Spanish seed Feliciano Lopez to set up a grandstand showdown with Nadal.
"I can't believe that I'm playing him," said Tomic, the last Australian in the men's draw after Lleyton Hewitt's five-set defeat to David Nalbandian.
"What an opportunity it is to play him, in a third round as well. It's a dream come true."
World number four Robin Soderling reached the third round for the first time at Melbourne Park, extending a rich run of form which took him to last year's French Open final and the Wimbledon and US Open quarters.
Later Murray beat Marchenko 6-1, 6-3, 6-3 as he bids to amend last year's final defeat to Roger Federer and end Britain's 75-year Grand Slam title drought, after Fred Perry's US Open win in 1936.
Russian 10th seed Mikhail Youzhny and Croatia's Marin Cilic, the 15th seed, also went through along with 2008 finalist Jo-Wilfried Tsonga of France, who came through two tie-breaks for a fist-pumping win over Italy's Andreas Seppi.
Marcos Baghdatis, the 2006 runner-up, won 6-1, 6-3, 4-6, 6-3 against injury-troubled Juan Martin del Potro, who was playing his first Grand Slam since missing most of last year with a wrist problem.
Meanwhile defending men's champion Federer cut a chastened figure after his late-night thriller, when Simon rallied from two sets down to put the all-time Grand Slam record-holder on the ropes.
"I was like, 'This can't be true, right?'," Federer said afterwards, when asked what was going through his mind. "I definitely felt something was not going my way," he added.
Argentine veteran David Nalbandian, who outlasted Hewitt in five marathon sets in almost five hours late on Tuesday, withdrew with exhaustion as he trailed Lithuania's Richard Berankis.
"Today I was empty. I didn't feel good. It was tough, very tough," Nalbandian said. "I tossed a ball for the serve and everything was moving around. It's tough playing like that."