The U.S. Open winner, 21, shed tears after missing three championship points in the second set but regrouped to win 7-6 (7-2), 5-7, 6-4, BBC Sport reported.
The fourth seed broke for 2-1 in the decider, then served out the win.
Eighth seed Kvitova, 28, was bidding for her first major title since being stabbed in a knife attack.
Osaka was all smiles during the trophy presentation in Melbourne – in contrast to her U.S. Open victory – and she continued a tradition of slightly awkward acceptance speeches.
"Erm, hello. Sorry, public speaking isn't my strong point so I hope I can get through this," she said.
"I read notes before this but I still forgot what I was meant to say. Thank you everyone, I am really honored to have played in this final."
The Japanese went on to become the first player since American Jennifer Capriati in 2001 to follow her maiden Grand Slam win immediately with another triumph.
She missed a fourth championship point with a long return, but took the fifth when Kvitova hit a forehand wide.
A smiling Osaka dropped to her haunches on the baseline before returning to her chair and covering her face in shock as she savored the moment.
Osaka, who replaces Simona Halep at the top of the rankings after the Romanian's 48-week stint, becomes the first Asian player to be world number one.
She is also the youngest to hold top spot since Denmark's Caroline Wozniacki, then aged 20, took the ranking in 2010.
Osaka claimed her first Grand Slam by beating 23-time champion Serena Williams in a dramatic final at Flushing Meadows, which is remembered for the American's row with umpire Carlos Ramos.
That left the Japanese player in tears and hiding behind her visor as she collected the trophy to the sounds of jeers from home fans in New York angry at Ramos, with Williams having to appeal for calm and respect for the new champion.
This time the atmosphere as she collected the trophy could not have been more different.
"I wouldn't have wanted this to be our first match, but huge congratulations to you and your team," she told the Czech.
"You are amazing and I am honored to have played you in a Grand Slam final."
‘Can’t believe it’
Kvitova was contesting her first Grand Slam final since her second Wimbledon win in 2014, with many fans hoping she could cap one of the sport's most inspirational stories with a fairytale finish.
Moments after Osaka sealed victory, an emotional Kvitova sat with her head in her hands as she seemed to be processing how far she has come over the past two years.
The left-hander needed surgery on her playing hand after the attack in a robbery at her home in the Czech Republic.
She sustained damage to ligaments and tendons when fighting off an intruder, but returned to the sport five months later.
"It is crazy. I cannot believe I played in the final of a Grand Slam again," said Kvitova, whose voice was breaking as she fought back tears.
"It was a great final – well done, Naomi.
"Thank you to my team for sticking with me, especially because we didn't even know if I could hold a racquet again. It wasn't that easy."
Kvitova wiped away tears as the Laver crowd burst into supportive cheers and applause.