Zhang upset the Norwegian, who was the beaten finalist at Flushing Meadows in 2022, 6-4 5-7 6-2 0-6 6-2 to reach the third round of a grand slam for the second time.
There he will face Australia's Rinky Hijikata, who eased through 6-1 6-2 6-1 against Marton Fucsovics of Hungary.
Wednesday's win was Zhang's second five-set victory to open this tournament, the Chinese player having outlasted J.J. Wolf over four-and-a-half gruelling hours on Monday.
"I believed in myself. If not, the fifth set was going to be a different result," Zhang told reporters after recovering from being blanked in the fourth set.
"At the end of the match, finished the last point, I didn't really celebrate. Not super-happy. But I was happy inside."
The 26-year-old Zhang reached the third round of the French Open in June before falling to Ruud, who had been to the finals in three of the last six grand slams.
"I'm not sitting here super-disappointed with things that I could have done better or my level. At the most important moments he was the better player. He stepped up," Ruud said.
"He has a great serve, beautiful backhand, and forehand, also. When it's on, it's on and really dangerous."
Seventh seed Stefanos Tsitsipas was also a surprise casualty on day three, falling in the second round to Swiss qualifier Dominic Stricker 7-5 6-7 (2-7) 6-7 (5-7) 7-6 (8-6) 6-3.
Ending the four-hour match with a forehand winner that just caught the baseline, the 128th-ranked Stricker raised his hands and flopped on his back to celebrate his first victory over a top-10 player in only his third grand slam appearance.
"I came out and felt good from the first set on," Stricker said.
"I just kept playing high-level tennis."
Three-time winner Novak Djokovic rolled to a straight-sets victory to move on, fighting off Bernabe Zapata Miralles on the hottest day at the tournament so far.
"That's why we train several hours a day in humid, hot conditions - so we can be ready for whatever awaits you on court," the second-seeded Djokovic said after a 6-4 6-1 6-1 victory in Arthur Ashe Stadium.
"I still have the hunger ... I still got it."
The 36-year-old Serbian, who owns 23 grand slam titles, is assured of retaking the world No.1 spot when the rankings are updated following the tournament after winning his opening match.
He will next face 32nd seed, and fellow Serb, Laslo Djere.
"It's great for Serbian tennis that we have a matchup in the third round," Djokovic said.
The 2020 champion Dominic Thiem retired with illness soon after dropping a first-set tiebreaker to American Ben Shelton, while French wildcard Benjamin Bonzi defeated 28th seed Christopher Eubanks 7-6 (8-6) 2-6 6-2 7-6 (9-7) to end the hopes of the American who made a surprising run to the Wimbledon quarter-finals.
Home hopes Frances Tiafoe and Taylor Fritz - both winners in straight sets - were joined in the third round by Tommy Paul, who recovered from two sets down to overcome the unseeded Russian Roman Safiullin 3-6 2-6 6-2 6-4 6-3.
- with Reuters
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