The 18-year-old put in a dazzling display on all four apparatus to seal the title with a score of 63.325 and emulate the feat of fellow Americans Mary Lou Retton and Carly Patterson.
Liukin edged out compatriot and world champion Shawn Johnson by 0.6 of a point. China's Yang Yilin picked up the bronze.
With victory confirmed, Liukin jumped into the arms of her ecstatic father and coach Valery, who himself was twice a gold medalist with the Soviet Union in the 1988 Seoul Olympics.
"It's amazing, I'm kind of speechless right now," Liukin said as she caressed the gleaming medal around her neck.
"I came through so many battles and so many injuries, standing next to the podium and hearing Olympic champion next to my name was a dream come true."
Liukin's victory broke China's stranglehold in the gymnastics competition in Beijing as the hosts had claimed both team titles while Yang Wei won the men's gold.
Johnson, the last gymnast to perform, stepped on the floor knowing she needed to score more than 16.125 to topple Liukin.
Since the 16.000 point-barrier had not been broken on the apparatus at the Olympics, the 16-year-old dynamo knew she was facing an uphill task.
But she held her nerves to pull off a near flawless routine on her signature event.
Once Johnson completed her final tumble she ran off to hug Liukin and the two girls posed for photographs while anxiously glancing up at the big screen to see which one of them would add their names to the Olympic hall of fame.
After what seemed like an eternity, Johnson's score of 15.525 flashed up and Liukin knew gold was hers.
FATHER-DAUGHTER DOUBLE ACT
"My dad is the reason why I became Olympic champion today," a beaming Liukin told reporters after they became the first father-daughter act to win Olympic golds in artistic gymnastics.
Long hailed as a future champion, Liukin had not won a global all-around title.
She was denied the 2005 world title by a miniscule .001 of a point while an ankle injury ruined her 2006 season. Last year she was eclipsed by the spectacular debut of Johnson.
Looking pretty in pink, Liukin embarked on a gold medal journey by playing it safe on her weakest apparatus, the vault.
While the likes of Johnson soared high into the air to perform the high-scoring 2-½ twisting Yurchenko vaults, Liukin powered down the runway and opted for 1-½ twists and nailed her landing to perfection.
The effort earned her a big bear hug from Valery and 15.025 from the judges.
She came alive on the asymmetric bars and impressed everyone in the National Indoor Stadium with her grace and elegance.
Her gravity-defying exhibition included three 360 degree pirouettes on one hand while rotating round the higher of the two bars -- fittingly drawing a high score of 16.650. It put her in second place behind Yang at the end of the second rotation.
Once Liukin mounted the beam to show off her deft footwork and balancing skills, Johnson was seen standing with her back turned and looking blankly at the side hoardings.
Liukin avoided any drama and a full twisting dismount completed her exhibition. As she waited for her score, she closed her eyes and was caught on camera murmuring "come on, come on".
The adjudicators heeded her call and rewarded her with 16.125 and with chants of "U-S-A, U-S-A" ringing in her ears, she completed her victory dance on the floor.
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