The Indo-Brazilian pair accepted defeat to the 10th seeds after an intense 2 hour 13 minute fight on Court 15.
Paes-Sa started brightly, breaking in the fifth game of the first set to take a 3-2 lead. They protected that lead to claim the first set 6-4.
Both sides then held on to their serves in the second set, forcing a tie-break. But Paes-Sa lost their serve thrice in the tie-break to surrender the second set. It turned the momentum of the contest away from Paes-Sa.
Mirnyi-Huey then snatched the initiative, grabbing a break in the seventh game of the decisive third set.
They maintained their advantage, winning the third set 6-4.
Paes' Australian Open campaign will continue in mixed doubles, where he will partner Martina Hingis against Australia's Destanee Aiava and Marc Polmans on Friday.
Earlier in the day, India's Purav Raja and Divij Sharan lost 6-7(9), 6-7(4) to Jonathan Eysseric and Fabrice Martin in their first round match.