After some tense early exchanges, the Spaniard cut loose, winning nine straight games to claim a second grand slam title to add to last year's French Open.
The 23-year-old fell to the floor in celebration after clinching victory in an hour and 17 minutes. It was her second Wimbledon final, having lost to Venus' sister Serena on the same stage in 2015.
"Two years ago I lost in the final to Serena and she told me one day I was going to maybe win and hey, two years after here I am," she said in a courtside interview.
When asked if she had a message for her coach Sam Sumyk, who is absent as his wife is expecting a baby, she held the trophy aloft and said: "Here it is."
In the first women's final played under the Centre Court roof, a high-quality first set gradually built towards a captivating conclusion.
It included several tests of nerve for the battling Spaniard, who showed an almost iron will not to give an inch even as Williams upped the aggression levels with ferocious intent.
Muguruza saved three break points, which included two tension-filled set points in the 10th game, the first of which saw the Spaniard emerge with a clenched fist from an epic 19-shot rally.
It was then her turn to go on the offensive. She crafted her third break point of the set when Williams netted a forehand and took her chance when the American sent a second forehand long after another lengthy exchange.
She took the first set when Williams netted a backhand and then put her foot to the floor with astonishing brutality.
She broke on three straight occasions in the second set as Williams seemed to hit a mental and physical wall.
When the five-times winner could barely get her racket to a vicious forehand, it gave the Spaniard three match points, but in keeping with a messy second set, she needed two Hawk-eye challenges to put the beleaguered American out of her misery.
As the scoreboard showed the ball had bounced out at 40-30, she dropped her racket and fell to the ground, before covering her face in an emotional celebration.
Photo: PHOTOSPORT Spain's Garbine Muguruza celebrates her Wimbledon championship win over Venus Williams.