World number 62 Collignon produced a brilliant display to beat the American number one 6-4, 7-5, 6-4.
The result leaves world number six Felix Auger-Aliassime as the highest-ranked player left in the top half of the men's draw after overwhelming title favourite Jannik Sinner was dumped out by Juan Manuel Cerundolo earlier Thursday.
Collignon, who also reached the US Open third round last year, will face either Matteo Arnaldi or former runner-up Stefanos Tsitsipas for a last-16 berth.
It is the first time big-hitting left-hander Shelton has exited a Grand Slam event before the third round since Wimbledon in 2023.