The British No 1, who won his first clay-court title in Munich last week,??systematically dismantled the clay king in the Spanish capital to the astonishment of his supporters in the??La Caja Magica.
Victory was Murray’s first ever on clay over Nadal in seven attempts and stretched the Scot’s perfect start on the surface this season to 9-0.
Defeat will see nine-time French Open champion Nadal slip to seventh in the world rankings, the first time he has been outside the top five in 10 years.
Nadal has struggled with injury in recent years but he looked to be getting back to his best before the start of the French Open later this month as he had not dropped a set en route to the final.
But the four-time champion ran into a ruthless Murray, who made few unforced errors and delivered countless winners to stun the Spaniard.
Nadal was forced onto the backfoot by a confident Murray from the off as the two-time Grand Slam champion won 12 of the first 14 points in racing into a 3-0 lead.
Nadal had two break back opportunities in the seventh game and one more as Murray served for the set at 5-3, but he couldn’t convert.
A similar pattern followed in the second set as a combination of some brilliant deep hitting by Murray and errors from Nadal gifted the word No 3 a break in the first game.
Murray backed that up by holding to love and moved to the brink of victory by breaking again in the following game.
Nadal resisted enough to force Murray to serve out for his 10th Masters Series title.
However, the 14-time Grand Slam champion handed the final game to Murray as he failed to put the ball in play on four returns to seal victory in just under 90 minutes on court.