World championship silver medallist Campbell, who beat Nevin in the semi-finals of last year's event by the tightest of margins, came out on top of another close contest, knocking the Irishman down in the final round to seal a 14-11 victory.
An emotional Campbell became the first Briton to win the Olympic bantamweight title since 1908 and gave the hosts their second boxing gold of the Games after Adams upset China's Ren Cancan on Thursday to win the women's flyweight.
"It's a dream come true, it's brilliant. I can't describe the feeling, but I've got a medal and it feels very heavy," Campbell said.
"I'm speechless, it's just been all the hard work, missing out on lots of things. I've not been able to fool around or anything like that, but I'm so proud of my family and Britain."
The duo, whose families are friends, had both been impressive in their semi-final bouts and were mindful of each other's hand speed in the opening round before engaging in tight exchanges as the crowd roared on.
Campbell, boxing smartly on the counter, took the exciting first round 5-3 as Nevin struggled to land clean shots.
Nevin, who resisted the temptation of turning professional to better his performance at the Beijing Games when he returned home empty-handed, began to find his range early in the second and caught the 24-year-old Briton with the tougher shots.
That brought Campbell forward and the Briton landed with both hands to claw back the damage and only lose the round 5-4 to leave him 9-8 ahead of the final three minutes.
With the gold medal on the line both fighters looked for the decisive blow and Nevin's desire cost him dear when he leaned in to land a left hook only to end up flat on his back after another counter right by Campbell, bringing huge cheers from the crowd.
The Briton was then able to resort back to clever counters to seal a victory that left him crying as the result was announced, embracing Nevin and holding his hand up before leaving the ring to a huge reception.
Nevin shook his head in disappointment as he collected his medal and losing semi-finalists Lazaro Alvarez Estrada of Cuba and Satoshi Shimizu of Japan bronzes, with Irish prime minister Enda Kenny watching on.
The Irish boxer was also reduced to tears as the British anthem was sung by the crowd.
"Congratulations to Luke, he's a fantastic boxer. He got his tactics right today. I maybe could have done a little bit more but I'm taking nothing away from him," Nevin said.
"It was an amazing experience and you can't describe the feeling you have when you are in the boxing ring. I won't argue with the decision, it wasn't meant to be today."