Nadal deservedly ends the year on top of the rankings after an incredible comeback from injury but Djokovic delivered an ominous show of force at the O2 Arena, running the man who replaced him as world number one ragged.
It was a one hour, 36 minute masterclass in power and precision from Djokovic and if anything the 6-3 6-4 scoreline flattered Nadal, who spent most of the match dancing to his opponent's tune.
After a week of sell-out crowds at the spectacular Thames-side arena it was fitting that the world's top two players should meet for the 39th time in the most prolific rivalry in the modern era and one that is eclipsing the great battles between Nadal and Roger Federer.
Both players had won all their round-robin matches before cruising through Sunday's semi-finals.
Nadal was bidding to land the title for the first time to cap a year that saw him roar back to the top of the rankings with 10 titles, including the U.S. Open and French Open, while Djokovic was finishing the season like a runaway steamroller since losing to Nadal in the Flushing Meadows final.
Apart from a few jaw-dropping rallies, however, the fireworks were confined to those that lit up the court as Djokovic got his hands on the trophy named in honour of the late ATP executive chairman Brad Drewett, who died this year.
"Look, the year-end number one is deservedly in Nadal's hands because he had two grand slam wins, the best season out of all players, the most titles," said Djokovic, who in capturing the title for a third time stretched his winning run to 22.
"But next to the run that I had in 2011, this is definitely the second best I've had," he told reporters.
"The most positive thing that I can take from this two and a half months is the fact that I managed to regroup after a few big losses after Nadal, especially Roland Garros, U.S. Open final and Wimbledon final.
"I've worked harder and played better, become an even more skilful player. This is definitely the best possible way that I can finish the season," added Djokovic, who next week will lead Serbia against the Czech Republic in the Davis Cup final.
Nadal tried to put a brave face on his defeat.
"I think at the beginning he was playing much better than me, the first three games no doubt," the Spaniard said.
"After that I didn't see the difference."
The statistics offered a clue, however.
Djokovic hit 19 winners to Nadal's nine, committed less errors and served much better than his opponent, who threw in two costly double faults at 3-4 in the opening set.
Djokovic dominated virtually from start to finish and despite the 17,000 crowd willing Nadal to drag the match into a decider, he was powerless to fight off an opponent who peppered the lines with relentless accuracy.
The Serb, who ceded top spot to Nadal in October, began the final as if he had a point to prove and playing immaculate tennis he raced to a 3-0 lead as an edgy Nadal struggled for timing.
Nadal finally began to get on the front foot and won the next three games as Djokovic's level dipped briefly.
Djokovic edged back in front again and broke serve with one of the points of the tournament, a spellbinding rally in which he sprinted across the baseline to produce an inch-perfect lob, danced into the net and won a quickfire exchange of volleys before raising his fists to the crowd.
Having lost the first set Nadal could ill afford handing Djokovic a lead in the second but his forehand continued to misfire and the Serb took the invitation to seize complete control with another break of serve.
Djokovic looked to be running away with it and moved in for the kill but Nadal's pride dug him out of a deep hole.
The Spaniard saved match point at 5-3, and again when he chased down a drop shot at 5-4, but Djokovic merely sucked in some air, stared down the other end and blasted down his sixth ace before clinching victory when Nadal sent a forehand wide.
While there was disappointment for Nadal, compatriots Fernando Verdasco and David Marrero gave Spain a lift with victory over Bob and Mike Bryan in the doubles final.
Verdasco and Marrero, the sixth seeds, upset the favourites 7-5 6-7(3) 10-7 as the title went to a Spanish pair for the second successive year following the triumph of Marcel Granollers and Mark Lopez 12 months ago.
The Californian Bryan twins were looking to win their 12th title of 2013 and surpass the 11 they won in 2007 and 2010, but were edged out in a match tiebreak.