Machida landed a left kick to the body that clearly hurt Dollaway and Machida pounced with punches.
"That kick landed, I saw that he felt it and I went for the finish," Machida told Jon Anik afterwards.
This victory keeps the 36-year-old Machida relevant in the 185-pound hunt. The next opponent for Machida very well could be fellow contender Luke Rockhold.
Dollaway (15-6) had won four of his last five fights to announce himself as a true top-10 fighter in the UFC's middleweight division..
In the co-main event, Renan Barao made his return by beating Mitch Gagnon by submission (arm triangle) at 3:53 of the third round.
Also on the main card, Erick Silva beat Mike Rhodes by submission (arm triangle) in just 1:15 of the first round and Marcos Rogerio de Lima defeated Igor Pokrajac by TKO at 1:59 of the first.
Daniel Sarafian won by TKO (injury) when Antonio Dos Santos dislocated his finger at 1:01 of the second round.
In the prelims, Brazilian Renato Carneiro took out Tim Niinimaki by submission (rear-naked choke) at 3:30 of the second, Hacran Dias knocked off ranked featherweight Darren Elkins by unanimous decision (29-28, 29-28, 30-27) and Leandro Issa finished Yuta Sasaki via submission (neck crank) at 4:13 of the second round.
Tim Means maybe should have knocked out Marcio Alexandre in the first round, but a knee was called illegal and Alexandre was given new life. Still, Means dominated the rest of the bout and won by split decision (29-28, 28-29, 29-28).
In the opener, Vitor Miranda knocked out Jake Collier with a head kick at 4:55 of the first round.