The 23-year-old sent the 30,000 crowd into raptures as he beat Germany's Felix Neureuther, the son of former Olympic champion Rosi Mittermaier and 1970s slalomist Christian Neureuther, by 0.42 seconds over the two runs.
Hirscher's compatriot Mario Matt completed an excellent day for the hosts, whose only previous gold was in the low-key team event, by finishing third to add to the gold medals he won in the slalom in 2001 in St Anton and 2007 in Are.
Hirscher, who won silver in Friday's giant slalom, led after the first run and nearly came a cropper as he attacked on the second, but recovered his balance just in time.
American Ted Ligety's hopes of a fourth gold medal ended early when he skidded out high on the first run.
Ligety had already won the super-G, giant slalom and combined to become the first male skier to win three golds at the championships for 45 years.
But he is not a slalom specialist and said beforehand he did not expect to win Sunday's race.
Fans packed the stands and mountainside more than an hour before the start in sub-freezing temperatures, many of them guzzling cold beer and eating hot dogs from as early as eight o'clock in the morning.
The course, which plunged 216 metres, ended in a bowl surrounded on all sides by the crowd to create a raucous atmosphere.
However, much of noise was made by the stadium announcer, who told fans when to jump, cheer, wave flags and blow their plastic horns, and the incessant blaring music.
Austrian pair Benjamin Raich and Manfred Pranger both blew their chances with mistakes when they were on course for a good time.
Veteran Raich lost two seconds which cost him a chance of the bronze when he slipped and Pranger failed to finish after straddling a gate halfway down.
"It's been such a tough battle and there was a lot of pressure of course, it's just phenomenal," said Hirscher, who has a testy relationship with the Austrian media. "I knew the other two were fast, and I had to perform."
Neureuther was happy with his performance given Hirscher's form this season, especially in the slalom.
"Silver is a great success for me. I knew Marcel would be difficult to beat, it has been a great duel between us, each went to his limit."
Hirscher last year won the overall World Cup which is considered the ultimate skiing test as it is held over the entire season and includes results from all disciplines.
He has become dominant in the slalom, leading the category in the World Cup this season after winning four races out of six and finishing on the podium in the other two.
- Sports & Recreation
- Felix Neureuther