The 21-year-old US Open champion held her nerve to battle past Petra Kvitova 7-6 (7/2), 5-7, 6-4 and claim back-to-back Grand Slams, becoming the first Asian, male or female, to hold the top ranking in the process.
"I'm beyond excited to become the new world No 1," she said after dislodging Romania's Simona Halep.
"I've always dreamt of being in this position and I am honoured to be part of the elite group of players who have reached the No.1 ranking."
At 21 years, 104 days old, she is the youngest player to be on top of the world since Caroline Wozniacki reached the pinnacle in 2010 at 20 years and 92 days old.
After making the semi-finals at the China Open last October, Osaka became the second Japanese woman to break into the Top 5, following Kimiko Date who reached No.4 in November 1995.
She has now gone a step further to write her name in the history books as the first Asian to be crowned number one since computer rankings were introduced in 1975.
It has been a rapid rise. This time last year she was languishing at 72 but a 40-20 win-record last year saw her race into the top 10, claiming two titles including a breakthrough US Open final over Serena Williams.
Now on a 14-match win streak at the Grand Slams, some of the greats of the game lauded her achievements.
"Winning back-to-back Grand Slam tournaments is a rare and special achievement, and I’m thrilled these results have propelled Naomi to the top of the women's game," said Chris Evert, the first ever WTA world No.1.
"Her exciting brand of tennis, coupled with the dignity she displays on and off court, is a winning combination that tennis fans really embrace.
"She is still so young, with so much potential to keep growing as No.1. I can't wait to see what the future holds for her," she added.
Fellow former great Billie Jean King has also been impressed with what she's seen of the shy Osaka, who has a Japanese mother and a Haitian father.
"Congratulations to the 2x Grand Slam champion, @Naomi_Osaka!," she tweeted.
"Your future is so bright, and your talent, drive, and determination will take you far."
Martina Navratilova added to the plaudits, saying: "Well, after winning the US Open Naomi Osaka became a star. And now, after winning the Australian Open and becoming world number 1, she is a superstar!"
Osaka has shown growing maturity on court and has proven she can handle the pressure cooker situations, but admits to being introverted off court and not a natural socialite.
By winning a second Grand Slam and becoming world number one, she has firmly established herself as at the forefront of the next generation of women players. And with that comes all-consuming attention.
Soon after her Melbourne Park win, Japanese Prime Minister Shinzo Abe tweeted: "I'm so proud of the birth of the new world queen."
Kvitova, 28, knows what it's like to be the centre of attention. She won her first Grand Slam, at Wimbledon, aged 21, and said Osaka would need to handle extra pressure.
"It took me a while to kind of get used to it. I think it's always a bit more pressure from outside, as well as from yourself," she said.
"You just want to play better. You're thinking like you have to win every single match because you just won a Grand Slam.
"It's about the time, as well," she added.
"You just need to get used to the attention. Every time you are stepping on court, you are kind of favourite of the match. The other players just want to beat you because you're playing well."