Simona Halep improved to 16-1 on the season and said her confidence is what keeps her going in tight matches.
Muguruza became the first major casualty of the event, suffering a shock 2-6, 7-5, 6-1 defeat to world number 100 Sachia Vickery.
Roger Federer remained at the number one spot with 10,060 points.
Simona Halep has reclaimed the world number one ranking from Australian Open champion Caroline Wozniacki, despite pulling out of last week's Dubai Championships due to a foot injury.
World number two Simona Halep won on her return to competitive action since losing the Australian Open final, beating Ekaterina Makarova in straight sets in the Qatar Open on Wednesday.
In a see-sawing contest, Halep sprinted into a 6-3, 3-1 lead before the 2016 Melbourne Park winner, seeded 21, fought back.
Top seed Simona Halep was impressive on Rod Laver Arena in thumping sixth seed Karolina Pliskova 6-3, 6-2, reeling off nine games in a row after going 0-3 behind in the first set.
Maria Sharapova was sent crashing out of the Australian Open in a crushing defeat by Angelique Kerber Saturday as Simona Halep survived a titanic struggle to make the last 16.
With the temperatures a manageable 26 Celsius (79 Farenheit) at Melbourne Park after two days of oven-like conditions, the Romanian looked out for the count against American Lauren Davis.
Five-time Grand Slam champion Sharapova, making her Shenzhen debut, despatched Romania's world number 56 Mihaela Buzarnescu 6-3, 6-0 in an hour and 20 minutes.
Unseeded Caroline Garcia of France won her second title in as many weeks as she stunned new world number one Simona Halep in the closely fought final of the China Open on Sunday.
Simona Halep will be officially confirmed World No.1 next week when the latest rankings are released.
Maria Sharapova was emphatically dumped out of the China Open in the third round on Wednesday by Simona Halep, going down 6-2, 6-2 to Romania's world number two.
The 30-year-old five-time major winner and former world number one was hit by a 15-month suspension after failing a drugs test at the 2016 Australian Open.
Maria Sharapova's comeback began with an April semi-final run at Stuttgart but many rivals complained about wildcard entries she received to assist her fight back to top form.
Five tennis players have a chance to grab the world No 1 ranking at this week's Cincinnati Open.
Jelena Ostapenko, 20 is the first unseeded player to lift the Roland Garros title and the first Latvian major champion in history.
The birthday girl from Latvia, who became the first unseeded player to reach the final since 1983, will play Romanian third seed Halep in the summit clash.