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Atletico Madrid and Palmeiras also won as the second round of group matches began, but it was Botafogo who stole the headlines.
A first-half goal from Igor Jesus proved the difference as last year's Copa Libertadores winners all but sealed a place in the knockout rounds from Group B in front of 53,699 fans at the Pasadena Rose Bowl in California.
PSG are one of the favourites for FIFA's 32-team tournament after a dazzling season which culminated with a scintillating 5-0 demolition of Inter Milan in the Champions League final.
But their hopes of securing a victory which would have seen them become the first side into the last 16 were stymied by a resilient performance from their opponents from Rio de Janeiro.
"A lot of people wondered, but we showed how strong Botafogo is," goalscorer Jesus said after the win, which kept all of South America's representatives unbeaten at the competition in the United States.
"It was a difficult game and we had to defend well, and we did our job and scored a goal."
Botafogo took the lead against the run of play on 36 minutes as Jefferson Savarino's through ball split the PSG defence and released Jesus.
He then did brilliantly to wrongfoot the covering Willian Pacho before sweeping a shot that took a slight deflection past goalkeeper Gianluigi Donnarumma on its way into the net.
"We knew it was going to be a very difficult match -- they defended very well," said PSG coach Luis Enrique.
"This Club World Cup is very intense and difficult and all the teams are highly motivated, especially when they're playing against us."
Botafogo's win leaves them firmly on course for the last 16, with a final group game against Atletico to come on Monday.