Rauf Aliyev scored a screamer to give the Group F minnows a fifth-minute lead and Northern Ireland conspired to waste at least half a dozen glorious chances to equalise.
However, the draw - coming after Northern Ireland's heroic point in Portugal - still feels like a defeat.
The West Brom captain is one of the country's most established players, but O'Neill made the brave call to go with Shane Ferguson and Niall McGinn on the flanks, with the latter hoping to build on his goalscoring performance in last month's 1-1 draw against Portugal.
Burnley's Danny Lafferty was handed his competitive debut at left-back after Ryan McGivern failed a fitness test.
Ferguson had the fans on their feet in the first minute when he powered down the left wing only to be fouled as he looked to release Danny Lafferty on the overlap.
Kyle Lafferty should then have put the hosts in front after three minutes but somehow headed over from six yards after McGinn floated over a precise cross from the right.
And just 90 seconds later Azerbaijan took the lead with their first attack.
Javid Huseynov won the ball in midfield and laid off to Rauf Aliyev who bent in a stunning shot from 30 yards before embarking on ecstatic celebrations.
Northern Ireland fashioned a good attack in the 10th minute, Danny Lafferty looking for McGinn at the far post, but the Aberdeen winger was unable to apply the finishing touch.
Azerbaijan looked dangerous on the counter-attack and only a Gareth McAuley block denied Aliyev the chance to try his luck a second time.
Northern Ireland, meanwhile, were enjoying plenty of time on the ball but struggled to make the final pass count.
O'Neill resisted the temptation to send on Brunt during the break and the equaliser almost arrived just two minutes into the second period.
McAuley nodded down Davis' free-kick and Cathcart controlled the ball on his chest before blazing over from the six-yard line.
Chances continued to flow, McGinn and Baird the latest to go close, but Kyle Lafferty was booked for a blatant dive after 56 minutes, earning a one-match ban in the process.
If not for Carroll things would quickly have gone from bad to worse.
He raced from his area and produced two sliding tackles to scramble the ball clear when a breakaway goal seemed certain.
On the hour mark Baird produced arguably the worst miss yet, heading Ferguson's cross wide at the far post when scoring seemed easier.
Nine minutes later he spurned another glorious chance when heading substitute Paddy McCourt's cross wide from an unmarked position.