Italy beat France 5-3 in a penalty shoot-out to win the World Cup after an absorbing 1-1 draw in Berlin.
Italy are now one World Cup win short of Brazil's tally
Fabio Grosso scored the winning penalty after France's David Trezeguet missed.
Playing his last game before retiring, Zinedine Zidane's career ended in disgrace after he was sent off for crazily headbutting Marco Materazzi.
Zidane had put France ahead early on with a coolly-taken chipped penalty, before Materazzi levelled with a header from an Andrea Pirlo corner.
The result caps an incredible period for Italian football, with the domestic game embroiled in a corruption scandal similar to 1982 when they last won the World Cup.
They have now won the competition four times, one fewer than Brazil, and it was the first time they managed to win a World Cup match on penalties after three failed attempts.
DID YOU KNOW?
Only four men have scored three goals in World Cup final matches - Geoff Hurst (England), Vava (Brazil), Pele (Brazil) and now Zinedine Zidane (France)
But France legend Zidane may forever be haunted by the moment of madness which cost him a second World Cup title.
Only Zidane knows why he chose to shove his head into Materazzi's chest after the two had exchanged words with 10 minutes left of extra-time.
He had started so well, too, with a goal after six minutes that meant Zidane, who scored twice in the 1998 final, became the fourth man to score in two World Cup finals after Brazilians Vava and Pele and Germany's Paul Breitner.
He casually chipped a penalty in off the crossbar after Florent Malouda had won the spot-kick with a fall when Materazzi appeared to catch his foot as he came across to challenge.
But Italy recovered well from their unfortunate start and the industrious Pirlo and Gennaro Gattuso quickly began to set the tempo of the game.
Through Pirlo's dead-ball delivery, they were soon on level terms. The AC Milan midfield maestro whipped over a corner from the right and Materazzi thumped a header past Fabien Barthez.
France failed to learn their lesson. Moments later Materazzi saw another header cleared off the line by Lilian Thuram before Luca Toni nodded onto the bar - both efforts from Pirlo corners.
Thierry Henry had had a quiet first half, but he burst into life after the break with two turbo-charged runs that struck fear into the heart of the Italian defence.
It was a more open final than many had predicted and both teams were attacking with gusto, though Italy came within a whisker of taking the lead when Toni was adjudged offside after heading in a Pirlo free-kick.
Marco Materazzi falls to the ground after being butted by Zinedine Zidane
At the other end Henry was causing problems with his pace and Gianluigi Buffon had to be alert to parry away a snap-shot from the Arsenal striker.
As it went into extra-time, France had started to dominate proceedings.
Malouda was only kept out by a last-ditch Fabio Cannavaro tackle before Franck Ribery poked agonisingly wide and Buffon tipped Zidane's header over.
It was Zidane's last meaningful contribution to the French cause as with 10 minutes left of extra-time, his professional career ended in shameful circumstances.
He became involved in a dispute with Materazzi and, inexplicably, headbutted the Italian in the chest.
After the assistant referee informed referee Horacio Elizondo of the incident, the Argentine was left with no choice but to send Zidane off.
His team-mates looked shell-shocked, but they held on to force penalties for only the second time in a World Cup final after Italy lost to Brazil in 1994.
Pirlo, Materazzi, Daniele de Rossi, Alessandro del Piero and Grosso made no mistake as Italy became the most successful European country in World Cup history.
Italy: Buffon, Zambrotta, Cannavaro, Materazzi, Grosso, Camoranesi (Del Piero 86), Pirlo, Gattuso, Perrotta (Iaquinta 61), Totti (De Rossi 61), Toni.
Subs Not Used: Amelia, Barone, Barzagli, Gilardino, Inzaghi, Nesta, Oddo, Peruzzi, Zaccardo.
Goals: Materazzi 19.
France: Barthez, Sagnol, Thuram, Gallas, Abidal, Ribery (Trezeguet 100), Vieira (Diarra 56), Makelele, Zidane, Malouda, Henry (Wiltord 107).
Subs Not Used: Boumsong, Chimbonda, Coupet, Dhorasoo, Givet, Govou, Landreau, Silvestre.
Sent Off: Zidane (110).
Booked: Sagnol, Diarra, Malouda.
Goals: Zidane 7 pen.
Italy win 5-3 on penalties.
Ref: Horacio Marcelo Elizondo (Argentina).
Fifa man of the match: Andrea Pirlo
Italy won their fourth World Cup title, following victories in 1934, 1938 and 1982. Brazil are the only country to have won the competition five times. This was only the second World Cup final to be decided by a penalty shoot out. The Squadra Azzurra have conceded only two goals during Germany 2006. They have now equalled France's record set in 1998, for least goals conceded by World Cup finalists.
Zinedine Zidane's opener marked his third career goal in a World Cup final. He became only the fourth player to net three goals in the most prestigious match in world football. This record is shared with Brazil's Pele and Vava and England's Geoff Hurst. The 34 year old French legend also became the fourth player to score in two World Cup finals, joining Vava, Pele and Paul Breitner of Germany. Zidane became the fourth player to be sent off in a World Cup final, joining countryman Marcel Desailly (1998), and Argentines Pedro Monzon and Gustavo Abel Dezotti (1990).
Zidane's goal ended Italy's clean sheet streak of four matches, one short of the World Cup best. This record was also set by Italy in 1990. Italy are unbeaten in 25 international matches, their longest such sequence since 1939. Their 12 goals at this tournament were scored by 10 different players. This equals France's record set in 1982.
Trivia stats source: Infostrada Sports