Selby was looking for his third world title on the bounce but Perry put in an excellent display to end his two-year hold on the trophy.
The world number one found himself 4-0 down midway through the first session before falling 7-2 behind after the interval.
The Leicester potter put another two frames on the board but Perry pushed on to claim a famous win at the iconic Crucible Theatre.
"The last three or four years I have had good success here so I cannot complain,” Selby said.
“To go out before the tournament has even started is disappointing.
"Performance-wise, my season has not been up to standard but then I have won two big tournaments so it is hard to say it has been a bad season. It has been inconsistent."
Asked if he is going to watch the rest of the tournament at home, Selby joked: "No. I am going to sell all my TVs and buy some new ones in three weeks' time."
Meanwhile, Cambridgeshire's Perry was understandably over the moon to knock out the reigning champion.
He said: ”I am delighted, chuffed. When the draw came out, it is one of your two worst nightmares.
“I knew I had to perform at the best of my ability today and I did for the most part.
“A few nice bits of luck was on my side today which I capitalised on and very pleased with my performance."
Perry will play the winner between Masters champion Mark Allen and fellow qualifier Liam Highfield in the next round.
