The dominant sprint hurdler of the last two years, Pearson was hot favourite to win gold to add to the silver she won in Beijing four years ago.
Rain started pouring down on the stadium as the athletes took to their blocks but 25-year-old Pearson got away to a flying start to take a lead she never relinquished.
Americans Dawn Harper and Kellie Wells pushed her all the way, however, and it was the Australian's low dip as she crossed the line in 12.35 seconds that won her gold.
Pearson faced a nervous wait before her name flashed up on the scoreboard and she collapsed in a heap on the track in delight when her victory in an Olympic record time was confirmed.
"It's a dream," she said. "Relief was the first thing I felt and then shock. I'm just going through the emotions. I really wanted this.
"I didn't realise how close Dawn was until the end. I said in my head, 'please don't let this happen, I need this'. I never let anything stop me from doing what I want to do."
Defending champion Harper took silver in 12.37 and Wells won bronze in 12.48, both athletes running personal bests.
"I couldn't feel her, it was so close crossing the line and I just didn't know what had happened," said Harper.
"I looked up and then I said 'darn, I didn't get her'. It was really good. It was a really close race.
"I came back with the some hardware and a personal best of 12.3. You cannot be mad with that."
Pearson got a big hug from Wells and another from her coach of 14 years Sharon Hannan before draping herself in her country's flag for her lap of honour in the rain.
It was a first gold medal on the athletics track for Australia since Cathy Freeman won the 400 metres at the 2000 Olympics in Sydney, the race which inspired Pearson to take up the sport.
Although her mother is English, Pearson describes herself as very much a "true blue Aussie" and her gold medal will provide a much-needed boost for her country after a disappointing first 10 days of the Games.
Americans finished second, third and fourth with Lolo Jones the only one to miss out on a medal.
Wells, who handed Pearson her only defeat this year in her last race before the Games at the London Grand Prix, paid credit to her coach.
"Amazing," she said. "To know that I came and got a bronze medal and a PR and to have achieved so much.
"I was a 13.1 hurdler when came to my coach. I am so thankful for him."
Jones tripped on a hurdle when leading in the final as the favourite at the Beijing Olympics four years ago and was left regretting only the result.
"I am pleased to say at least I can lift my head up a little bit higher when I tell my kids their mom ran in the Olympics," she said.
"It won't be a bittersweet memory. At least this time it was a clean smooth race. I just wish I had a better result."