Kenny's previous two Olympic gold medals came in the team sprint alongside Hoy, but now the 24-year-old from Bolton is an Olympic individual champion after a sensational 2-0 final victory over three-time world champion Gregory Bauge of France.
The Briton qualified quickest for the three-day competition on Saturday and outpaced Bauge in the first of their best-of-three contest.
Kenny then led out the Frenchman and just had too much speed for his opponent to send the velodrome into raptures.
It was Britain's fifth gold from seven medal events, with the potential for further success on the final day of racing on Tuesday.
Australia's Shane Perkins claimed bronze with a 2-0 defeat of Trinidad's Njisane Nicholas Phillip.
The one rider per nation rule introduced by the International Cycling Union and International Olympic Committee weakened the field and saw Kenny selected ahead of Hoy.
But a Kenny versus Bauge final was befitting of the blue riband event.
Kenny finished second to Hoy in Beijing and to Bauge at April's Track Cycling World Championships in Melbourne.
The Briton was awarded the 2011 world title after Bauge was stripped of the rainbow jersey for an anti-doping infringement.
Both men made serene progress to the final, with Kenny beating Phillip 2-0 in his best-of-three semi-final and Bauge seeing off Perkins in the other last-four tie.
Bauge was drawn on the inside for the first final contest, which meant he had to go in front of Kenny, turning to watch his opponent.
Kenny weaved up and down the banking to tease Bauge and then used the slope to his advantage to speed past his rival and win by a wheel's length and go 1-0 up.
The draw then put Kenny in front, but the Briton was unflustered and had too much speed for his opponent as he powered to a supreme victory.
Victoria Pendleton's Olympic odyssey was set to continue into the final day of the London 2012 track programme after she advanced to the semi-finals of the corresponding women's event.
Defending champion and six-time world sprint champion Pendleton advanced with a 2-0 best-of-three quarter-final win over Olga Panarina of Belarus.
The 31-year-old from Stotfold was seeking a third gold to become Britain's most successful female Olympian and is set to retire after tomorrow's racing.
Friday's victory in the keirin saw Pendleton move level with athlete Kelly Holmes, swimmer Rebecca Adlington and sailors Shirley Robertson, Sarah Ayton and Sarah Webb on two Olympic gold medals.
Pendleton was a comfortable winner of the first bout with Panarina and a decider was not required as the Briton won the second contest by 10 metres, showing her blistering form.
It has been an eventful competition thus far for Pendleton, who together with Jess Varnish set a world record in the team sprint before the pair were relegated by officials for a takeover infringement.