Groothuis tripped in his 500m heat on Monday but his strides were perfect in his pet race on Wednesday as he clocked one minute 8.39 seconds for his two-and-a-half laps in the 16th heat of 20 at the Adler Arena.
He then watched on from the side of the ice as one-by-one the final eight challenges fell short of his time, with American pre-race favourite Davis surprisingly eighth.
Canadian Denny Morrison came closest in the heat after Groothuis, 0.4 seconds back in the silver medal position, while Michel Mulder of Netherlands, the winner of the men's 500m, took bronze.
"It was really unexpected. The last two Olympics weren't my favourite thing, and I was happy to go home, but now it's different," Groothuis told reporters.
"I didn't even know what the best time was and when I crossed the finish line, I was really surprised. It was the best time I've ever skated on a low-altitude track."
The victory meant a fourth speed skating gold in five events for the Dutch, who have 10 medals in total in Sochi - all from speed skating.
Their previous best in speed skating is five golds and 11 medals at the 1998 Nagano Games - a mark they are expected to smash with seven disciplines remaining.
While the success of 5,000m champion Sven Kramer and 3,000m victor Irene Wust had been predicted, few had backed the 32-year-old Groothuis, who had failed to medal in his two previous Olympics in Turin and Vancouver.
Davis was the favourite to become the first male speed skater to win the same race at three consecutive Games and join compatriot Bonnie Blair and Germany's Claudia Pechstein in achieving the feat.
But he was forced to make do with eighth place, 0.71 seconds back, after a stuttering 18th heat where he was beaten to the line by another Dutchman, Koen Verwij.
"This one hurts me a lot but kudos to the people who were able to go out there and achieve their dreams," the American said.
The failure of the 31-year-old, who also has two Olympic silver 1500m titles to his name, surprised Groothuis.
"Actually I was thinking Shani was going to get it," the 32-year-old Dutchman said.
"When Shani didn't get it I thought 'well these guys are going to have a tough job'."
South Korean Mo Tae-bum, second to Davis in this event four years ago, went in the penultimate heat but also encountered problems as his dire Sochi Games continued with a 12th place finish.
"I am very tired. I want to sleep. I want to forget about this Olympics as soon as possible," said Mo, who finished fourth in the defence of his 500m title. A surprise win, but fully deserved, according to Mulder, as the Dutch prepared for another night of celebration.
"Stefan has been doing a great 1,000m for a lot of years already, I think he is world class," said Mulder.
"He was one of the favourites on the last Olympics but got sick just before.. so I think we have a great winner here."