The 25-year-old blew away reigning world champion Femke Bol of the Netherlands to take gold in 50.37sec at the Stade de France.
Anna Cockrell of the United States took silver in 51.87sec while Bol finished third to claim bronze in 52.15sec.
The winning time bettered McLaughlin-Levrone's own world record of 50.65sec set at the US Olympic trials in Eugene in June.
The victory extended McLaughlin-Levrone's remarkable five-year unbeaten streak in the discipline and cemented her status as the greatest women's 400m hurdler of all time.
An elated McLaughlin-Levrone said afterwards she had simply focused on the 10 hurdles in front of her -- and revealed she was now targeting breaking the 50-second barrier.
"Every race is you against 10 hurdles," she told reporters. "Obviously there's people next to you that are going to push you, but it doesn't matter if you don't focus on the barriers in front of you.
"So that was my focus – me trying to be as efficient as I could over those 10 hurdles and me trying to lower that time every time.
"There was a lot of anticipation leading up to this race specifically, rightfully so...But you channel those nerves into excitement."
Asked if she had run the perfect race, McLaughlin-Levrone replied: "There's always things you can improve.
"There's no such thing as a perfect race but the closer and closer we can get to 49 (seconds) -- I feel like we're inching there. It's just building up the capacity in your legs to get you there."
'Screwed it up'
Bol had been desperate to claim a first victory over McLaughlin-Levrone after taking a bronze in the Tokyo Olympics three years ago and a silver behind the American at the World Championships in Eugene, Oregon in 2022.
But McLaughlin-Levrone -- who missed last year's Budapest World Championships won by Bol due to injury -- was not going to be denied.
Drawn in lane five with Bol outside her, McLaughlin-Levrone quickly began making inroads on the Dutchwoman who blazed out of the blocks.
Just after the 200m mark the American star made her move, accelerating past Bol to head into the final straight with a clear lead.
With Bol tiring and Cockrell steaming past her, McLaughlin-Levrone was in a race against the clock and she duly dug deep over the final metres to smash her own world record.
McLaughlin-Levrone basked in the adulation from the crowd after another jaw-dropping performance, and she was soon wrapped in a US flag and wearing a glittering tiara as she saluted her fans.
Bol meanwhile looked distraught as she crossed the finish line, and could be seen slapping herself in apparent frustration.
Later the Dutchwoman said she had "screwed it up".
"All you want to do in an Olympic final is to put up your best race," Bol said.
"I screwed it up. I'm not sure where I made the mistake. I just got so much lactic acid with 300m to go. I'm not sure why, I really have no explanation.
"This is just a bad race. I'll look at the positives, I'll talk to my coach, I'll try to enjoy the bronze."
McLaughlin-Levrone however had words of consolation for Bol following the loss.
"I have so much respect for sure," McLaughlin-Levrone said. "There's nothing but respect there. We're just trying to be the best we can be. She's great, she's continuing to get better and she pushes me to be my best."
