Honda's Pedrosa trailed fellow Spaniard Lorenzo by 23 points entering the race and had hoped to take the title battle to the final round, but his challenge ended when he lost control at the Phillip Island circuit's hairpin turn four.
Lorenzo narrowly avoided the flailing Pedrosa and that was the last of his troubles as he settled into a fuss-free run behind retiring local hero Casey Stoner, who delighted home fans by extending his record to a sixth straight victory in his Down Under swansong.
After Stoner saluted a roaring gallery on the final straight, Lorenzo pulled a 'wheelie' and shook his fist in triumph as he crossed the line more than nine seconds behind under brilliant sunshine.
The ebullient 25-year-old continued the celebrations in the pit lane, burning his tyres to wrap himself in smoke as jubilant team mates and officials jumped up and down around him.
"I'm really, really happy with this championship because we know how difficult it is to fight with riders like Casey, like Dani and to fight with a factory like Honda. It is very hard," Lorenzo, who won his first title in 2010, said.
"You must be very consistent, never make a mistake and always try to finish the races and be very focused, so today is a very special day."
Lorenzo takes an unassailable 43-point lead in the championship, rendering the final round a victory parade in front of Spanish fans in Valencia.
Briton Cal Crutchlow finished third on another Yamaha, matching his best finish of the season.
While the championship belongs to Lorenzo, the day belonged to two-time MotoGP champion Stoner, who was greeted by record crowds at the picturesque seaside circuit.
The championship was a two-horse race between Lorenzo and Stoner until the Australian injured ligaments in his right angle at the US Grand Prix, sidelining him for three rounds before he returned at the Japan Grand Prix earlier this month.
Despite carrying the still-painful injury to Phillip Island and crashing during qualifying, Stoner underlined his mastery of the track by taking pole on Saturday, with Lorenzo second on the grid.
Lorenzo capitalised on a poor start by Stoner, however, and seized the lead at the first turn, but then had it quickly swiped by a desperate Pedrosa, who had won five of the previous six races to delay his countryman's coronation.
Stoner roared past his Honda team mate in the final straight of the first lap and the wheels fell off for Pedrosa four turns later, and at the same corner where the Australian was thrown from his bike during qualifying.
Caution was Lorenzo's watchword after qualifying, having endured a chequered history at Phillip Island, losing part of a finger in a sickening crash during morning practice last year and crashing out at the first turn in 2009.
Happy to concede the race to the local hero, Lorenzo also enjoyed a threat-free view in his mirrors, with fellow Yamaha rider Crutchlow keeping a safe distance.
"I just maintained a good gap to the guys behind and made sure it went up and was not going to push to follow Jorge because I think would have been sacked if anything happened," Crutchlow said.
Stoner, who announced his retirement in May, citing his disillusionment with the sport and the grind of touring, was hailed by a huge crowd in pit lane long after the chequered flag.
"It's been a fantastic build-up. It was very important for me to win a race before I retire and to do it at my home Grand Prix here was just a fairytale," said Stoner, who won his first title with Ducati in 2007, and finishes his career at the age of 27.
"This whole weekend has gone almost ideally and the crowd of people, the fans, everything has just been amazing.
"It gives me a great feeling and a great pride to be out there as an Aussie to make everybody proud."
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