The Serb's 4-6 6-3 6-3 victory was his fourth successive victory over Nadal but only his fourth on clay in their 41-match head-to-head series dating back to 2006.
After a slow start in which he twice dropped serve, Djokovic took control of the baseline rallies and finished the match with a flurry of precision groundstrokes that had Nadal reeling.
"Beating Rafa on clay is definitely a confidence booster," Djokovic, who claimed his third Rome title and the 44th of his career, told reporters.
"Let's hope it's something I can take into Roland Garros."
Beating Nadal in the French capital is a different proposition altogether but the way Djokovic managed to dominate the Spanish world No.1 augurs well for his chances of completing his career grand slam next month.
He has won eight of the last nine sets they have contested.
"It's been a great week considering where I was a few weeks ago with the wrist injury," said an emotional Djokovic, who was making his comeback in Rome after injuring himself in the Monte Carlo Masters last month and missing the Madrid Masters.
"I tried to be aggressive from the beginning to the end. It didn't work at the start but I didn't change the game plan and I found the right rhythm and everything started going in."
Seven-times Rome champion Nadal had spent 10 hours on court reaching the final, including gruelling late-night wins over Gilles Simon and Andy Murray, and he looked powerless to stop Djokovic's charge, although he did threaten a comeback in the decider when he broke back to 3-3.
Defeat for Nadal was his third on clay in a season for the first time in a decade and raised further questions about his form ahead of the French Open which starts next Sunday.
Nadal hinted that his heavy schedule in Rome had been a factor in his defeat.
"Rome now is the past for me," said Nadal.
"I have to start thinking about Roland Garros next week, and if my chance of playing well in Paris wasn't very high a few weeks ago, now I think that I have a better chance."
"When you play night matches you go to bed at three in the morning, which isn't ideal... it wasn't the perfect schedule for me or for my tennis.
"I played three very tough matches and 10 matches in 12 days, so yeah I was a little bit tired."
Nadal has dominated in Rome over the last decade and looked in no mood to surrender his title, breaking twice to lead the first set 4-1, showing no sign of fatigue.
Djokovic instantly broke back and then had a chance to level the set in game eight when he moved 0-40 ahead on Nadal's serve only for the Mallorcan to fend off the attack and clinch the opener.
Djokovic raced out of the blocks in the second set, breaking for a 2-0 lead with a rifled forehand winner and held for 3-0.
Some forehand errors from the Djokovic racket allowed Nadal to battle back to 2-3 but a double fault gifted the world No.2 another break and this time there was no way back as the 41st meeting between the players went to a decider.
Dominating the baseline exchanges with power and accuracy Djokovic grabbed the initiative early in the third set and could have moved a double break ahead but for some typically gutsy defiance by the Spaniard.
Nadal then clawed his way back to 3-3 courtesy of a poor Djokovic drop shot but just when it looked as though he was winding up for a grandstand finish the match was snatched from his grasp with a burst of scintillating play by Djokovic.
After breaking for 4-3, Djokovic rattled through his own service game in little more than a minute and then moved 15-40 ahead as Nadal served to stay alive.
One match point went begging but Nadal wafted a groundstroke long on the next point to surrender his title.