Stepanek broke the big Croat's daunting serve four times with Karlovic throwing down only two aces.
"I don't know what happened to me. I was [up] 5-3 in the first set, then I was [down] 7-5, 2-0, then 5-2," he said.
"If you want to talk about my tennis, I'm not happy today. But, you know, on the other hand, I was I think a bit lucky. But happy to be in the second round again because this victory, it's really important for me."
Results from the Monte Carlo Masters Men's Singles Round 1 matches on Monday
11-Tommy Robredo (Spain) beat David Goffin (Belgium) 6-4 6-1
Roberto Bautista (Spain) beat Vasek Pospisil (Canada) 6-2 6-2
Pablo Andujar (Spain) beat Edouard Roger-Vasselin (France) 2-6 7-5 7-6(5)
Albert Ramos (Spain) beat Jarkko Nieminen (Finland) 6-2 7-5
10-Fabio Fognini (Italy) beat Joao Sousa (Portugal) 5-7 7-5 6-4
Albert Montanes (Spain) beat Benoit Paire (France) 7-5 4-6 6-2
Lukas Rosol (Czech Republic) beat Evgeny Donskoy (Russia) 7-5 6-1
Philipp Kohlschreiber (Germany) beat Simone Bolelli (Italy) 6-3 6-4
Radek Stepanek (Czech Republic) beat Ivo Karlovic (Croatia) 6-1 6-2
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- Joao Sousa