The record seven-time winners took an early lead 90 seconds in when Mohamed Salah accidentally assisted Mostafa Mohamed, but it was all downhill until stoppage time.
Mozambique, the 111th ranked side in the world, went on to score two quickfire goals shortly after half time, with former West Brom man Ahmed Hegazi particularly culpable.
In stoppage time, VAR gifted the Pharaohs a penalty, with Salah stepping up to rescue his side from defeat.
With Egypt ranked 78 places higher in 33rd, the result should have been an easy victory in Group B, but could now cause plenty of problems with Ghana and Cape Verde to come.
The result will come as good news to many Liverpool fans, who are hoping for an early exit for Egypt and their captain Salah.
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Mohamed Salah gets bizarre assist 90 seconds into Egypt's AFCON opener
Salah to miss cup and league games for AFCON participation, leaving Liverpool stretched
The 31-year-old is a modern day legend at Anfield, and current has his side top of the Premier League and competing for a quadruple.
With 27 goal contributions in 27 games this season, there's fears things could be derailed this season with Salah potentially away until mid February if Egypt were to make the final.
However, should things continue how they've started, Egypt could be heading home early as their group stage finishes on January 22.
To make things worse for Jurgen Klopp's side, Wataru Endo is also unavailable due to the Asian Cup.
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The defensive midfielder started with three points against against Vietnam, registering an assist in a 4-2 win where former Red Takumi Minamino managed a brace.