The five-time world champion steadied after losing the first two frames, fighting back from 2-0 down with breaks of 50 and 91.
But he failed to take the lead at any point in the match, falling behind 3-2 then 4-3 as he faced down a shock defeat.
Trump claims second title of season with World Open victory over Un-Nooh
A break of 72 in the final frame was enough for Dale to win the held-over clash and book a second-round meeting with Fergal O’Brien.
The match witnessed a bizarre ending, with a flurry of fans charging towards the defeated O'Sullivan for an autograph, causing the 43-year-old to jump back in surprise.
‘The crowd are a little stunned’ – Dale ousts O’Sullivan
Elsewhere, world number one Judd Trump returned from his shock early exit at the English Open to race past Zhang Jiankang 5-0, posting knocks of 80, 104, 63, 70 and 69.
Mark Selby reached the second round with a 5-3 victory over Anthony Hamilton, while Shaun Murphy came through 5-2 against Alan McManus.
Neil Robertson is absent from the event after accidentally missing his qualifier earlier in October, with the Australian comically driving to the wrong Barnsley after a sat nav mix-up.
Higgins beats Bingham to set up Trump clash in World Open semi-finals
Trump sneaks past Perry after gripping 38-minute decider