Victory for the Dane, who lost in the 2010 WTA final and twice in the US Open final, ends years of near misses on the biggest stage and caps a memorable 2017, where she reached eight finals and added a second title to the Pan Pacific crown which she won in September.
While Wozniacki put an end to her season of falling agonisingly short, it was another high profile runners-up finish for Williams, who had become the oldest woman to reach the final in the tournament's history, after beating Caroline Garcia in Saturday's semi-final.
The 37-year-old, a US Open semi-finalist and runner-up at both the Australian Open and Wimbledon, Williams performed admirably throughout the week, as well as the season, but in the end was outdone by Wozniacki's powerful groundstrokes.
"I am so happy I managed to win in the end," said the champion who capped a memorable return from an injury-plagued 2016 to claim the Billie Jean King Trophy.
"Eight is my lucky number. If I was going to beat her (Williams) once in my career, it had to be today.
"I couldn't be happier right now. It's been an amazing year. Last year was tough with injuries but I fought my way back and to stand here and win the title means a lot to me."
Wozniacki had beaten Elina Svitolina and Simona Halep in the group stage before a brilliant victory over Karolina Pliskova in the semi-finals.
But heading into the game, Wozniacki had failed to win any of her seven career meetings with Williams and had only taken one set from those contests but she started fast to set the tone for her victory.
Three breaks from the Dane gave Wozniacki the edge, the pivotal moment coming when she broke the Williams serve leading 5-4 to seal the opening set before racing into a 5-0 lead in the second.
One game away from the title Wozniacki was broken twice in succession by Williams who reeled off four successive games to threaten an unlikely comeback but once again 5-4 proved to be crucial for Wozniacki as behind her own serve she fired a brilliant backhand winner to seal the title and a rise to No 3 in the final world rankings.
Williams will remain fifth in the rankings after a year of coming close and having defied her years in 2017 has high hopes of going again next year.
"I didn't seem to come up with my best tennis until it was too late," said Williams. "I love being here, it is an honour. Only eight players get to be here and I hope to return."