In a thrilling final, world No 1 O'Sullivan established a lead in the afternoon session that he did not relinquish until Selby won the penultimate frame to take the game into a decider.
Selby, winner of the prestigious non-ranking title in 2008, has a reputation for winning deciding frames and enhanced his record by edging out O'Sullivan with his fourth frame in a row to claim the 150,000 prize money with a 10-9 victory.
This was the first major tournament since Barry Hearn's appointment as chairman of the World Professional Billiards and Snooker Association, a move that has been tipped to reinvigorate the sport after a slump that has seen players disillusioned. This thrilling final will help.
Hearn has already announced plans for a world-ranking tournament in Berlin next year and has promised razzmatazz – in the case of the Masters it has been players entering the 4,000-seat arena to music and in the style of heavyweight boxers ready to do battle.
Selby fittingly walked in to Underdog by Kasabian, who hail from his hometown of Leicester and are friends with the 26-year-old.
As the favourite, O'Sullivan eased himself into the contest after losing a scrappy opening frame and established a 5-3 first session lead.
Selby took the ninth frame, O'Sullivan knocked in 92 in reply but Selby's response was a break of 136, a run that included a pressure shot on a pink.
Sensing the opportunity to level, Selby looked in control of the next frame but received a bad bounce off a cushion while playing for a pink, and O'Sullivan took advantage.
Selby showed fine temperament after that setback and fought back again with a 78 but the match was following the pattern of O'Sullivan holding him at bay.
Breaks of 89 and 91 got O'Sullivan within sight of back-to-back titles at 9-6 but Selby dug deep with consecutive frames, including another century, to set up a thrilling finale at 9-8. Then Selby took the final two frames of the match, making it four in a row, to lift the title.
World No 1 O'Sullivan had won an exciting last-four contest on Saturday against Mark Williams 6-5 while Selby saw off Scotland's Stephen Maguire 6-3.