Taylor, whose only previous defeat in this tournament came in 2001 against Kevin Painter, had no answer to the inspired play of Callaby.
The Cambridgeshire thrower scored heavily throughout the match and sealed an unbelievable 2-0 win over the man regarded as the greatest player of all time.
Callaby capped off a memorable display by checking out on 145.
Former world champion Steve Beaton overcame Paul Williams to book his place in the second round, last night.
Beaton fought back well after losing the first set to clinch a 2-1 win at the Citywest Hotel.
Roland Scholten, who won the Budweiser UK Open at the Reebok Stadium in June, battled his way to a 2-0 win over ‘Diamond’ Dave Askew.
Scholten's next opponent is Chris Mason who showed a lot of character to secure a 2-1 win over Peter Evison.