At the end of a 260-kms ride from Copenhagen, Manxman Cavendish beat Australian Matthew Goss, with German Andre Greipel coming home third.
"There couldn't be another result after the way the guys rode today. I'm so proud," Cavendish, the first Briton to win the title since the late Tom Simpson in 1965, told Eurosport.
"Hopefully we can make the double with this title and the Olympics next year." Cavendish, who has already 20 Tour de France stages to his name, benefited all day from tremendous work by his Team GB teammates who controlled the field, working tirelessly in front of the peloton.
The 26-year-old 'Manx missile' was sheltered and nurtured by Bradley Wiggins, David Millar, Geraint Thomas, Jeremy Hunt, Ian Stannard, Steve Cummings and Chris Froome.
Tour de France green jersey winner Cavendish, widely rumored to join Team Sky next season, sneaked through in the slightly uphill final straight and then left no room for doubt.
He succeeds Norway's Thor Hushovd who lost all chance when he was held up by a massive crash with 85 kms left.
The race got off to a nervous start, with France and Spain putting a rider each in the breakaway as some 250,000 cycling fans turned out along the course, according to organizers.
Anthony Roux and Pablo Lastras, along with four others, built an eight-minute gap that Britain and Germany, hoping for a massive sprint, controlled from the front of the peloton.
With 108 kms to go, five riders, including France's Yoann Offredo, Paris-Roubaix winner Johan Van Summeren of Belgium and Luca Paolini of Italy, launched a counter-attack, forcing the sprinters' teams to work hard in front of the pack.
The crash 85 kms out cost Hushovd and around 90 other riders about a minute.
With 70 kms left the early escapees were caught but still had a one-minute lead over the peloton and at this point Team GB stepped up the pace.
Roux tried his luck solo with 34 kms left but the main pack caught the remains of the breakaway with 23 kms to go and soon picked off Roux.
But they could not rest long as Frenchman Thomas Voeckler, Belgian Klaas Lodewyck and local favorite Nicki Sorensen sped away.
Seven kms from the line, the peloton re-grouped as Team GB and Australia prepared for the most eagerly awaited sprint of the season.
Swiss powerhouse Fabian Cancellara gave it a shot but could only manage fourth. Goss got to Cavendish's wheel, but had to settle for second.
