The 21-year-old - who turns 22 tomorrow - capped a sensational double gold adding the 200m world record to his 100m crown in a breathtaking race in Beijing's Bird's Nest stadium.
He achieved a time of 19.30 - breaking Michael Johnson's previous record of 19.32.
The exuberant Jamaican, who broke into a dance after his win, had already set a new record in the 100 metres.
He said: "I told everybody 'I'm going to go out there and leave everything on the track' and I did just that."
Churandy Martina, of the Dutch Antilles, took silver in 19.82.
American Wallace Spearmon crossed the line in third place in 19.95 but was disqualified for running out of his lane and team-mate Shawn Crawford, who ran 19.96 was promoted to the bronze medal.
Britain's Christian Malcolm finished seventh in 20.40.
For Team GB, unexpected success came for Natasha Danvers, who is coached by her husband Darrell Smith, in the 400 metres hurdles.
She won a bronze medal despite Achilles and hamstring injuries earlier in the year.
London-born Danvers, who now lives in LA, said: "I'm just so thrilled because it had been probably the worst year and now the best year in my life all at once."
Britain's boxers are now guaranteed another three medals, as James DeGale joined team-mates super-heavyweight David Price and light-heavyweight Tony Jeffries in securing a semi-final place.
The middleweight, 22, put on a brilliant display to beat reigning Olympic welterweight champion Bakhtiyar Artayev.
He will now face Irishman David Sutherland in the semi-final.
After his win, Londoner DeGale said: "It's all about tactics when you get to this level.
It's the little things on the day. I can beat anyone in the world if my tactics are right, and Terry (Edwards, head coach) and I got the tactics perfect."
Elsewhere Keri-Anne Payne and Cassie Patten claimed silver and bronze in the gruelling 10km open water swimming.
The pair are both coached by Sean Kelly and members of the Stockport Metro club.
Payne said: "We didn't talk at all out there. We're best friends, we train together and we just kind of knew when to kick at the right time."
Patten revealed she had her feet tugged back by Ilchenko in the closing stages.
"I was quite annoyed. It's not sportsmanship when you pull on someone's feet," she said.
Bryony Shaw secured Britain's fifth sailing medal of the Games coming third in the women's windsurfing to claim a bronze in Qingdao.
A hugely emotional Shaw, who lives in Weymouth, made a slip-up by swearing on live TV after her victory.
But there was disappointment as gold hope windsurfer Nick Dempsey came in fourth.
The 28-year-old said: "I sailed brilliantly this week and it's just a shame that today went the way it did.
"Another day, it could have gone another way. Another race, another lap, it could have been different but that's the way it goes and that's the Olympic Games."
Mo Farah, born in Somalia but living in Twickenham, failed to reach the final of the 5,000 metres, coming sixth in his heat, and Michael Harvey, 18, missed out in the 58kg repechage in the Tae Kwan Do.
Tomorrow, BMX champion Shanaze Reade, who overcame an early fall to get through to the semi-finals, will bid for gold.
Reade impressed at the World Championships in June and triple gold winner Chris Hoy has said he would "put his mortgage" on her being among the medals in China.