It was the Swiss star's 58th career title but first this season and first against Nadal since the 2007 Tennis Masters Cup semifinals.
Nadal was seeded No. 1 and Federer No. 2 in the event.
"It's not the moment to get carried away, but it is definitely good for my confidence, especially beating Rafa in the final so it definitely proves that I am doing the right things and I am working extremely hard and it is paying off," Federer said.
In the clinching set, Federer trailed 15-40, but rallied to deuce and launched an ace down the middle on his second championship point to down the clearly fatigued Nadal.
Nadal, the world's top-ranked player needed to save three match points in his three-set marathon win over third-seeded Novak Djokovic in Saturday's semifinal.
"It doesn't help to play four hours yesterday," Nadal told Examiner.com. "(But) he (Federer) was simply better than me."
Nadal has a 13-7 lifetime record against Federer.