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Monaco, ranked 16th in the world, captured his fifth career ATP title and his second of the year after a February crown at Vina del Mar. Before that, he had not won an ATP title since 2007.
"This is a great moment in my career," Monaco said. "This tournament is going to bring me a lot of confidence."
Monaco, who improved to 5-8 in ATP finals, had reached the semi-finals last month at Miami, losing to the eventual winner, world number one Novak Djokovic.
Isner saved 12 of 15 break points that he faced, but lost the only one he saw in the third set to surrender a break in the penultimate game of the match. Monaco held once more to claim the crown after two hours and 27 minutes.
"I came out of the gates slow," Isner said. "I wasn't quite there. It took a while to get warmed up and engaged in the match. I got better as the match went on. After the first set, the quality from both of us picked up a lot.
"I had some things go right in the second set but I had some things go against me in the third set. He was pressuring me pretty well all day. All in all, it was a good effort and was the best match I played all week."
Monaco had lost both prior matches against Isner, including a third-round affair last month at Indian Wells.
"We played a great final," Monaco said. "First set, I played really well. Then he came back in the second. In the final set, it was a battle. We fought until the last point. I served pretty well in the last game so I'm happy."
Despite the defeat, Isner will become the top-ranked American player in the world on Monday when he passes countryman Mardy Fish and moves up one spot into ninth in the ATP rankings.
"I'm making good strides this year. I just have to keep on working," Isner said. "I know there's room to improve in my game. I still need to get into better shape.
"I want to play 70 matches a year. To do that, I would have to have a pretty darn good year."
Isner, who sparked a US semi-final Davis Cup triumph on French clay last week to book a semi-final date with Spain in September, missed a chance for his fourth career ATP title and the first on clay.
Isner, a runner-up to Roger Federer last month at Indian Wells, lost to fellow American Sam Querrey in the 2010 Belgrade final in his only prior clay final.
