Madrid, who beat Levante 8-0 in the Copa del Rey last season, started well enough but the 41st-minute dismissal of midfielder Sami Khedira was a key incident and Levante took advantage to claim the points thanks to Arouna Kone's second-half strike.
Aside from Khedira's red card, there were also 11 other yellow cards shown as the referee was kept busy in a tempestuous encounter at the Ciutat de Valencia.
The result leaves Madrid three points behind pacesetters Valencia and one behind arch rivals Barcelona, who recorded an 8-0 win of their own on Saturday after thumping Osasuna.
Madrid came into the match having scored 10 goals in winning their opening two fixtures and they would have been expected to add another three points against a Levante side that had drawn their first two matches.
Cristiano Ronaldo, who has netted 15 times in his previous six league games, started the match on the bench after needing stitches to an ankle injury sustained during Wednesday's Champions League win over Dinamo Zagreb, but even without the Portugal ace Madrid were soon taking charge.
Karim Benzema felt he had opened the scoring in the 10th minute only to see his celebrations cut short by the referee's whistle for an infringement, and Kaka then fired over and saw an effort saved by Levante goalkeeper Gustavo Munua.
In the 23rd minute Benzema looked certain to score when Munua raced out of his goal and spilled a high ball, but the Frenchman's shot was blocked on the line by Sergio Ballesteros.
Benzema had another half-chance in the 34th minute when Munua was again caught off his line, but the former Lyon man's attempted lob went well over.
Madrid's bid to continue their 100% start then suffered a big setback when they lost Khedira.
The Germany midfielder was shown a second yellow card following a fracas involving numerous players near the touchline, with Khedira receiving his booking after shoving over Ballesteros.
With his side a man down, Mourinho opted to send Ronaldo into the fray at half-time, the £80million man replacing Benzema.
However, it was Levante who started the second half the better and Vicente Iborra's long-range effort drew a parry from Iker Casillas before Juanlu spurned a great opportunity for the hosts.
He was put through down the left but, after racing into the box, he ignored two team-mates steaming into the middle when a pass looked a better option and opted to shoot, with his effort going wide of the far post.
Levante need not have worried though as within two minutes of that they took the lead.
Javi Venta made his way into the area before cutting the ball back to Ivory Coast striker Kone, who took one touch before rifling an unstoppable shot into the roof of the net past Casillas.
The 10 men of Madrid tried to fight their way back into the clash after that but they found it tough to create chances against a heavily-packed home defence and were largely limited to efforts from outside the box.
Levante, in contrast, looked capable of netting a second on the counter-attack and Carlos Aranda was denied by Casillas following some good skill late on, but in the end in only needed Kone's goal to down Mourinho's star-studded side.