James, 19, coasted to victory in a time of 43.94 seconds - the fastest in the world this year - half a second ahead of the Dominican Republic's Luguelin Santos and Lalonde Gordon of Trinidad and Tobago who took silver and bronze.
The gold was the latest in a glut of titles for the youngster nicknamed "The Jaguar".
He followed up the 2009 world youth title with the world junior title in 2010 and last year in Daegu became world champion in only his fourth professional appearance.
"It means a lot. I am so excited," James said.
"It is probably crazy at home right now, there is probably a huge party in the streets. I don't think there is any words that can describe the celebration right now."
James finished sixth in this year's world indoor championships and had raced sparingly this season, maintaining that his focus was always on the London Games.
He did not disappoint. His time inside the Olympic stadium was his first sub-44 mark and shaved four-tenths of a second off his personal best. It also made him the first non-American to go under 44 seconds.
"We have talked about this for the last two years, we have seen the big picture and he just delivered," said James's coach Harvey Glance, a former Olympic sprint relay champion.
"We knew after the rounds he was in phenomenal shape. We knew he had a sub-44 in him."
America's 400m world record Michael Johnson, who ran 43.18 in Sevilla in 1999, said James could be the man to break it.
"I am sure he will have a world record in his sights - my world record - and he could very well be the one to break it because he is a tremendous talent," Johnson told the BBC.
"He is very young and he has many, many years to learn more about this event."
James, who will now have to get back to his student studies, remained typically level headed on his new time, saying that he is "on the right track to do some good things".
Monday night's race was notable for the absence of Americans who failed to make the final for the first time ever. The US have won the last seven Olympic titles and swept the podium three times in 2008, 2004 and 1988.
In London, though, the signs were ominous from the start when defending champion LaShawn Merritt pulled up with a hamstring injury just moments into his heat. Youngsters Bryshon Nellum and Tony McQuay could only make the semi-finals.
That left the stage free for James who looked in complete control of the one-lap race from the gun, gliding past his rivals before building his lead coming into the final straight.
World junior champion Santos, the third fastest man this year going into the race, was billed as James's main rival in Merritt's absence but never looked like seriously threatening.
Belgian twins Kevin and Jonathan Borlee finished fifth and sixth respectively.