Only the second unseeded woman to win the Australian title in the Open era, Williams came into the tournament ranked No. 81 after spending most of last season on the sidelines because of a knee injury.
It was her first title in 15 tournaments since winning the 2005 Australian Open, and the most dominating win in a completed championship match at Melbourne Park since Steffi Graf beat Arantxa Sanchez-Vicario 6-0, 6-2 in 1994.
Williams finished off Sharapova with a backhand winner, then threw her racket in the air and dropped onto her back on the court.
The 25-year-old American, also the 2003 champion, got up and skipped over to the side of the court, swapping high-fives with mother Oracene Price and other people in the stands before jogging back onto court with her arms up in triumph.
Williams started aggressively and never relented.
She held to open and then won 12 straight points after Sharapova had a game point in the next to jump to a 4-0 lead. Williams saved a break point in the fifth game before Sharapova held at love to make it 5-1.
Williams served out, taking the first set in 26 minutes on her second set point when Sharapova sent a backhand service return wide.
The American broke Sharapova's serve and resolve again to open the second set, then had consecutive double-faults to give the 19-year-old Russian a break point chance in the next game. In a manner typical of her determined performance Saturday, Williams fired an ace to save the break point and held on back-to-back errors by Sharapova.
Williams led 4-0 before Sharapova held again, avoiding the most lopsided women's final ever in the Australian Open.
Serving for the match, Williams fired two aces to earn triple match point, then finished it off in 1 hour, 3 minutes with the backhand winner.
Williams missed nine tournaments immediately after losing in the third round at the Australian Open last year and played only 16 matches in 2006, when she slumped as low as No. 140 in the rankings.
Despite only having three matches at a low-key warmup tournament in Hobart, she had was fit enough to advance over five seeded players.
Her win over No. 5 Nadia Petrova in the third round was her first over a top-10 player since she won the 2005 tournament.
Sharapova came into the match on a 13-match winning streak in Grand Slams, having won the U.S. Open last September.
After winning her first-round match in three sets over Camille Pin of France, Sharapova didn't drop a set in five rounds before the final.