Rossi had led the way going into the closing minutes, but a late 1m22.757s from Crutchlow put the Tech 3 Yamaha ahead of the works version by just 0.091 seconds.
Championship leader Marc Marquez worked his way up to third place as he learned the Laguna track on his first visit. The Honda rider was only 0.223s off the pace.
Having received medical clearance to take to the track just before the session, Jorge Lorenzo did eight cautious laps as he assessed his injured shoulder.
He was classified 11th, 1.6s off Crutchlow.
Fellow injured title contender Dani Pedrosa was also cleared to ride, but chose to sit out first practice to avoid straining himself. He will take to the track in the afternoon.
Stefan Bradl had a spell on top early on and was Rossi's closest rival for a long while, before slipping to fourth on the LCR Honda.
Ducati's Andrea Dovizioso also spent a while in first place and completed the final top six, behind Alvaro Bautista.
Dovizioso's team-mate Nicky Hayden, who announced on Thursday that he is losing his ride at the end of the year, was the leading American in eighth.
That put him behind top CRT rider Aleix Espargaro.
But it was not a straightforward session for Espargaro. He slid over the sand trap at the Corkscrew on one lap and had to park his Aprilia trackside at the end of the session.
His team-mate Randy de Puniet, who ended the morning 10th behind Bradley Smith, incurred the wrath of Crutchlow when they had a near-miss mid-session.
Alex de Angelis began his MotoGP return in 13th place. The Moto2 frontrunner is standing in for Ben Spies on what has become the sole Pramac Ducati due to Andrea Iannone's Sachsenring injury.
Local wildcard Blake Young was back with the Attack team's CRT bike and took 21st place.
Laguna MotoGP free practice one
1 35 Cal CRUTCHLOW GBR Monster Yamaha Tech 3 YAMAHA 1'22.757 18 20 262.9
2 46 Valentino ROSSI ITA Yamaha Factory Racing YAMAHA 1'22.848 18 23 0.091 0.091 265.4
3 93 Marc MARQUEZ SPA Repsol Honda Team HONDA 1'22.980 23 23 0.223 0.132 252.6
4 6 Stefan BRADL GER LCR Honda MotoGP HONDA 1'23.033 6 21 0.276 0.053 262.8
5 19 Alvaro BAUTISTA SPA GO&FUN Honda Gresini HONDA 1'23.255 21 21 0.498 0.222 266.1
6 4 Andrea DOVIZIOSO ITA Ducati Team DUCATI 1'23.380 20 22 0.623 0.125 263.9
7 41 Aleix ESPARGARO SPA Power Electronics Aspar ART 1'23.905 16 18 1.148 0.525 254.2
8 69 Nicky HAYDEN USA Ducati Team DUCATI 1'23.927 22 22 1.170 0.022 263.6
9 38 Bradley SMITH GBR Monster Yamaha Tech 3 YAMAHA 1'24.287 22 24 1.530 0.360 253.1
10 14 Randy DE PUNIET FRA Power Electronics Aspar ART 1'24.363 20 22 1.606 0.076 251.5