Shiffrin, who has already won three slalom races on this season's World Cup circuit, was third fastest in the first run but then produced a typically aggressive performance in the second to take gold.
One month short of her 18th birthday, Shiffrin pipped Austria's Michaela Kirchgasser by 0.22 of a second to become the third youngest women's slalom world champion and deny the hosts a first individual gold medal.
The Austrians, who won four of the five individual women's golds in Garmish-Partenkirchen two years, had to be content with Kirchgasser's silver and bronzes for Anne Fenninger in the giant slalom and Nicole Hosp in super combined.
Olympic champion Maria Hoefl-Riesch, gold medal winner in the combined event last week, straddled a gate in the lower part of the course as she missed out, four years after her slalom gold at Val d'Isère.
Defending champion Marlies Schild, who badly injured her knee two months ago at Are, Sweden, exceeded expectations by finishing ninth, only after three weeks after returning to the snow.
Sweden's Frida Hansdotter, who led after the first run, was third.
"I can't believe what is happening to me here," Shiffrin told reporters at the finish line.
"It has been quite a tough experience for me, especially this morning as I felt pretty tired prior to the race."
Shiffrin, who is in her second year on the circuit, leads the World Cup slalom standings and is impatient for more.
"I'm only 17 but this seems to have taken for ever for me," she said "I can't say how I'm feeling or how I do it. I do what and do and I don't want to wait.
"I guess I'll need some time to really understand the meaning of today's performance. Ask me again next year please."
It was the fourth individual gold out of a possible nine for the Americans at the championships after Ted Ligety won the men's super-G, super combined and giant slalom.
Julia Mancuso won bronze medal in the women's super-G, and narrowly missed the podium in Sunday's downhill when she was fifth and team mate Stacey Cook was sixth.
Ligety could add a fourth to the tally in Sunday's slalom which brings the two-week event to an end.
The total is all the more remarkable because Bode Miller, with his collection of Olympic, world and World Cup titles, is taking a season off while Lindsey Vonn was forced out of the championships after an ugly crash in the women's super-G.
Vonn is out for the rest of the season after undergoing knee surgery.
Kirchwasser thought she had blown her chances at the top of her second round.
"My second run begun really poorly as I have been hit twice by a slalom pole at my head in the first part of the course," she said.