The duo earned a record combined total of 216.57 points to capture China's first title in the discipline.
Compatriots Pang Qing and Tong Jian trailed the three-times former world champions by 3.26 points, while Germany's Aliona Savchenko and Robin Szolkowy finished third.
"Today's medal is a completion of a dream after so many years," said Shen, who had kissed the medal in unison with her husband while on the podium. They had finished third in the previous two Olympics.
Job done, a grinning Shen immediately set her sights on their next goal: "It's hard to continue skating -- maybe it's time to have a baby," she said.
Russian or Soviet skaters had dominated the pairs event by winning gold at 12 successive Olympics stretching back to the 1964 Innsbruck Games but on Monday they were completely knocked off the podium after Yuko Kavaguti and Alexander Smirnov both crashed to the ice during their free programme.
The last time they won a major title, Zhao had stunned Shen by dropping to one knee at the end of their free skate at the 2007 world championships to ask her hand in marriage.
This time there was just sheer joy that after three missed opportunities, they had finally won the ultimate prize at their fourth Olympics. The pair had first teamed up 18 years ago.
The last among 20 couples to compete, Shen and Zhao calmly stepped on the ice even though the Pacific Coliseum was still buzzing following the stupendous display by Pang and Tong -- who had brought the crowd to their feet with their breathtaking performance to "Impossible Dream".
Tong certainly thought he had produced a winning performance as he flopped down to his knees and kissed the ice after producing a near flawless display to earn the day's top mark of 141.81 for their free skate and a combined total of 213.31.
His feeling of jubilation lasted less than 10 minutes as Shen and Zhao blew away their rivals.
After opening their account with high-flying triple toeloops, those lucky souls in the arena witnessed Zhao sending his wife into orbit as they performed a back-to-back throw triple loop and throw triple salchow.
Shen landed each of the jumps with such precision it seemed as if she was performing on a metal surface with magnets attached to her blades dragging her down to the surface.
The duo's only blip was when Zhao over rotated on a double axel and were slightly out of sync in their side-by-side spins.
As it was, their score of 139.91 could not match Pang and Tong's free programme but having held a healthy advantage over their Chinese rivals going into Monday, it would have taken a fall to deny them gold.
Before the return of Shen and Zhao, the Germans had been tipped to win the Olympic title.
Savchenko skated on to the ice wearing brown boots with a sequined red heart emblazoned on the heel.
There was certainly plenty of love for the couple in the arena for their emotive performance to "Out of Africa" but a crash landing by Szolkowy on the double axel sealed their fate.
"We are a little bit disappointed as the performance wasn't the one we wanted to show," said a dejected Szolkowy, who could barely look at his bronze medal as it was placed around his neck.
"The pressure built up maybe in your mind. It's one long programme in four years. You have to skate clean if you want gold. We had one chance to perform the double axel and felt in the air that there was something wrong ... and it went wrong."
The British pair of David King and Stacey Kemp came out of the competition holding their heads high after recording a personal best score of 139.94 to finish 16th.
"We were just trying to enjoy it here, every moment. It's been a fantastic experience for us," said King.
"We did a great Olympic programme. There's a lot of pressure on you to perform here and we did great, we're really happy."
Meanwhile, French duo Vanessa James and Yannick Bonheur made history by becoming the first black couple to compete in Olympic pairs skating.
James and Bonheur, who met on an Internet site for competitive pairs skaters seeking partners, finished 14th on the evening, but with a series of high-flying jumps and high-risk lifts and throws, they were an audience favourite.
Place of birth: Harbin, China
Place of birth: Harbin, China
Previous Olympic results:
Bronze medallists, 2006 Winter Olympics
Bronze medallists, 2002 Winter Olympics
3x gold medallists, 2007, 2003, 2002 world championships
3x silver medallists, 2004, 2000, 1999 world championships
Bronze medallists, 2001 world championships
3x champions, 2010/09, 2006/07, 2004/05 Grand Prix
Shen and Zhao became the first Chinese figure skating pair to win a world title with a world championship gold in 2002, which they followed up in style with four perfect scores to take the 2003 award as well.
The pair started skating together in 1992 and despite being ranked China's number one they struggled for major victories up until 2002.
After winning another world title in 2007, the pair retired from competition and were married. They returned to complete an Olympic dream with victory in Vancouver.