After winning the first set over the Danish former world number one, Keothavong could not maintain the pace eventually going down 4-6 6-4 6-2.
Eighth-seed Wozniacki flew out the blocks in the second and broke serve twice to level matters on Centre Court and two more breaks in the third was enough to see the 22-year-old through.
Keothavong’s Team GB team-mate Elena Baltacha breezed through her opening London 2012 tie at Wimbledon earlier today.
Baltacha was the first Brit in action and took just 26 minutes to win the first set of her Court Four tie with Agnes Szavay 6-3 as she set up a comfortable victory.
And the 28-year-old was happy to make such a good start to her Olympic campaign.
"It's a very good start, I'm very delighted with that,” she said. “I think for a first-round match I'm very happy with how I played. I'm chuffed to be in the second round now.”
Szavay rallied briefly in the second set as the former British number one narrowly led 4-3 but Baltacha took the last two games to secure the set and the match.
Games debutants Keothavong and Baltacha both received wild card entries to the singles by the International Tennis Federation but experienced differing fates on day one.
Having disposed of the Hungarian, playing the tournament on a protected ranking following injury, Baltacha faces former world number one, Serbian Ana Ivanovic, in the second round.