Olympic sprint queen Anna Meares put Australia on the track cycling map for the second consecutive Games after stunning Britain's Victoria Pendleton 2-0 at the London Velodrome Tuesday.
China's Guo Shuang took the bronze after beating Kristina Vogel of Germany in the race for third place.
Defending champion Pendleton, a six-time world champion racing for the last time, had been expected to beat her arch-rival after showing stunning form on the way to the final.
But the 31-year-old Englishwoman's nerve seemed to go after she was relegated from the first race, which she won on a photo finish, having made the critical error of coming out of her sprint lane.
The pair got up for the second race, but after Pendleton decided to take the race by the scruff of the neck, following a brief trackstand, she had no response when Meares put in a big turn of pace on the back home straight.
The Australian, 29, came over the finish with relative ease to pump the air in joy and hand Australia their first gold of the cycling events.
It came four years after she had provided Australia's only track medal, a silver behind Pendleton. But for Meares, beating Pendleton was the icing on the cake.
"I wanted to do it as much for myself as I did for my team and my country tonight," said Meares, who had placed only fifth in the keirin, won by Pendleton, last week.
"She's been that target, that goal that I've been working towards over the past four years. I wanted the opportunity to be the best and I think to be the best I needed to beat Vicky."
Meares finished a close second to behind Pendleton in the 200m flying lap which serves as qualifying -- an indicator of who has the fastest finish for the event.
But the 29-year-old proved that she had the tactics needed to make the difference.
Already confident at having come from behind to almost beat her rival in the first race, Meares' belief was boosted further when, after their trackstand, she forced Pendleton to become the hunted.
"Even before the relegation came through I told my coach, 'I can do this'. The first ride gave me so much confidence and I think that was a big, big thing for me," said Meares.
"If I'm honest I think it gave me a little bit of an edge. I really wanted that rear position again in the second race to push that issue.
"It is quite a psychological game as well as a physical game and I knew once she was in front of me I had a real good shot of repeating what happened in the first one."
Pendleton had come to her final Games having set a series of personal bests at a recent squad training camp in Newport, Wales and continued that form during six days of competition in which Britain blew their rivals away on the boards.
But her relegation, her second of the Games having also been relegated from the team sprint, looked to have done irreparable damage.
"To get a DQ (disqualification) and relegated in one championships is also a new personal best. It (silver) is one off the perfect result for me," said Pendleton, who gave Meares a hug on the podium.
"Anna was wonderful. She did a fantastic job. She deserved it today. When you meet a rider of that calibre, it's always going to go either way."
Guo, who also took bronze in Beijing, had been ousted by Meares in what looked on paper to be the hardest semi-final.