The exhilarating final ended 2-2 after 120 minutes, with Japan equalising late in both normal and extra time before holding their nerve from the spot.
America's goals came from Alex Morgan and Abby Wambach, with outstanding players Aya Miyama and captain Homare Sawa levelling for Japan.
The USA dominated the opening 45 minutes, with numerous chances to break the deadlock going begging. The Americans could have been ahead as early as the opening minute as Lauren Cheney closed down Azusa Iwashimizu on the left and out-muscled her to get in on goal; she produced an early shot from a tight angle which was easily turned behind by Aymui Kaihori.
Cheney had another chance seven minutes later as Megan Rapinoe swung in a near-post cross from the left wing. The forward flicked past the post with the outside of her boot.
Carli Lloyd then Rapinoe herself had chances inside the penalty area inside the opening quarter-hour but neither effort was on target.
It seemed that Japan had weathered the early storm, but they could not create anything in attack - and came even closer to going behind after 29 minutes.
Tireless USA forward Wambach capitalised on a good advantage indicated by the referee to burst towards the penalty box from the halfway line. Her shot from 18 yards out was an absolute thunderbolt and looked to be heading into the top corner, but crashed against the crossbar and bounced to safety.
Japan did produce one opening as Shinobu Ohno found the lively Kozue Ando on the left of the area, but her shot from a tight angle was tame and comfortable for Hope Solo.
The US came close again before the interval as Rachel Buehler's cross from deep found Cheney who had beaten the offside trap and found herself unmarked 12 yards out. She looped her header over Kaihori - but also over the crossbar.
After the break the USA continued to dominate and just three minutes into the second half substitute Morgan got on the end of a low Heather O'Reilly cross; her near-post effort came back off the post and was held by Kaihori.
The USA were very lucky on 65 minutes as a poor officiating decision denied Japan a one-on-one. Sawa played a wonderful through-ball from deep to unleash Ohno, but she was incorrectly flagged offside.
Just a minute later the USA nearly capitalised as Wambach got on the end of an O'Reilly cross and powered a header at goal, but Kaihori did brilliantly to tip it over the bar.
Two minutes later, in the 70th minute, the USA finally went ahead thanks to Morgan. She showed pace to latch on to a long ball from Rapinoe and demonstrated incredible composure to fire a shot across Kaihori which nestled in the bottom right corner of the net.
It seemed it would be enough to win it for the USA, with Japan looking blunt up front, but a catalogue of errors handed the Asian team an equaliser with 10 minutes left on the clock.
Defender Christie Rampone gave the ball away on the edge of the box and the resulting cross was comically defended by Buehler and Alex Krieger, who played the ball in to each other and allowed Miyama to steal in and equalise from six yards out.
The Americans looked shell-shocked and struggled to regain their composure before the end of the 90 minutes, plunging the game into extra-time.
The first half of extra time was a scrappy affair, with the USA pushing forward more than the Japanese. They were rewarded with the lead in the 103rd minute: great work from Morgan on the left saw her beat her marker and fire a powerful cross right on to the head of Wambach - from six yards out there was no way she was going to miss the chance of a fourth goal in the tournament.
Japan responded quickly, Yukari Kinga latching on to a stunning Sawa through-ball; she chipped Solo, but Rampone was there to put it behind for a corner.
From the set-piece, with just four minutes remaining, the second Japanese goal arrived. Sawa made a great run to the near post to flick home Miyama's ball in; it seemed to take a deflection off Wambach.
Wambach had a great chance to win it for the USA but her close-range volley from an O'Reilly cross flashed wide. Then on 120 minutes Morgan looked to be through but Iwasimizu brought her down on the edge of the box; it was mistimed rather than malicious, but there was only one possible outcome - a straight red card for the Japanese defender.
The resulting free-kick presented a chance for substitute Tobin Heath, but her shot was blocked and that was the last action from open play and the match went to penalites.
Shannon Boxx was first up for USA but she saw her shot saved by Kaihori and after Miyama scored for Japan, Lloyd sent her spot-kick over the bar.
Yuki Nagasato then saw her effort saved by Solo but Heath made it none from three as Kaihori made another save.
Mizuho Sakaguchi made no mistake and even though Wambach converted from 12 yards an emphatic Saki Kumagai penalty won the World Cup for Japan.