The 20-year-old Demare, a trainee with the FDJ team, was led out by his team mate Adrien Petit, who took second place ahead of Briton Andrew Fenn at the end of a 168-km ride from Copenhagen.
Last year, Demare looked set to succeed compatriot Romain Sicard as champion but failed to sustain the pace in the final sprint and finished a disappointed fifth.
This time, the French team waited patiently in the bunch until the final kilometers when they struck as the Australians failed to keep up their momentum on the final stretch.
"I spotted him (Demare) in an under-16 race and thought he would make for a good rider," FDJ sports director Yvon Madiot, who signed Demare with the FDJ foundation, which helps young athletes to finish their studies, told Reuters by telephone.
Demare, who will start his professional career at FDJ next year, burst into tears on the podium after receiving the world champion's rainbow jersey.
"It was a perfect race; Adrien led me perfectly. We started with 250 meters left and I moved in front 100 meters from the line. Seeing he was second made it even better," Demare told a news conference.
"It went according to plan," said Petit, who turned professional this season with French team Cofidis.
Fenn, who rides with Sean Kelly's An Post team, had mixed feelings.
"They got it spot on," he said of the French pair. "I'm obviously happy because the team deserved a medal but a bit disappointed at the same time."
