The Serbian, who will on Monday surrender top spot in the world rankings to the Spaniard, captured his fourth ATP World Tour title of the year with a 6-3 6-4 triumph in Beijing.
The result improved Djokovic's record in the Chinese capital to 19-0 and made him the first four-time winner of the event following his successes in 2009, 2010 and 2012.
Nadal had secured his return to the world number one spot on Saturday when he advanced to the final courtesy of semi-final opponent Tomas Berdych retiring with a back injury, with the Czech trailing 4-2 in the first set.
The 27-year-old's rise to the top follows a remarkable comeback following a lengthy lay-off with a knee injury. Since returning to the court in February, Nadal has won 10 titles, including the French Open and US Open.
Djokovic quickly regrouped from the disappointment of being knocked off his perch, though, and made a fast start to the Beijing showpiece on Sunday.
He broke serve in Nadal's first service game en route to closing out a 35-minute opening set in which he conceded only two points on serve.
And the six-time major winner was equally dominant in the second set, snaring an early break and dropping just four points on serve to clinch an impressive win which ended a run of three straight defeats against the Spaniard.
"I needed this win today," Djokovic said on www.atpworldtour.com after halting Nadal's 22-match winning streak. "I really wanted to get my hands on the trophy and win against Nadal, who has been the best player so far in 2013.
"It's very important for my confidence. It's very important, mentally and emotionally, for me.
"It's been an incredible week again for me at the China Open.
"I still haven't lost a match here. I just love the conditions."
The 26-year-old, runner-up to Nadal at the US Open last month, continued: "I managed to stay tough and not drop my concentration, which I think (happened) in both Montreal and at the US Open in the important moments.
"I learned my lesson. It was a few very tough and close matches that I lost against Rafa on hard courts, especially the last one in the US Open final."
Nadal was gracious in defeat, saying: "I didn't see the way to stop him this afternoon.
"This afternoon he was too strong for me. I didn't play my best match, but he played at a very high level with his serve.
"I was not able to have any chance when I was returning during the whole match. He had the ball staying very low. It was very difficult to create spin on this ball.
"He was able to hit all the balls where he wanted. When that's happening against a player like Novak, you are dead. You don't have not one chance."