The Spaniard led from the first corner after a lightning start, delivering a faultlessly disciplined performance in front of 67,000 fans.
His task was made easier after reigning champion Marc Marquez -- who had earlier obliterated his own lap record to claim pole position -- lost the front of his Repsol Honda on the second lap, crashing unceremoniously out.
"I took a big sigh of relief," Lorenzo told reporters after the race, "because I was pushing so much and my tension level was very high. I was trying to pull away by some meters from Marquez."
Lorenzo had been anticipating the race would be a close run thing between the two Spaniards.
"I knew it was going to be difficult because my pace was very similar to his and after the warm-up I knew his pace was very strong," added Lorenzo.
With his teammate clear at the front, Rossi needed to keep pace to preserve his lead in the standings. "The Doctor" has never won at Aragon, with just a single podium to his name at the hot and twisting circuit, and started from sixth place on the grid.
Gradually the Italian fought his way to third, where he became involved in a ferocious duel with Repsol Honda's Dani Pedrosa. The two switched places time and again, with increasingly spectacular passes, but Pedrosa held off the Italian at the line to claim second place.
"I try everything, I give the maximum," Rossi said. "Because for sure it is important to arrive second and lose just the five points to Jorge, but at the end Dani today was very strong."
The result sees Rossi on 263 points, just 14 ahead of Lorenzo, with four races remaining. Marquez retains third, with 184 points, but his slim title hopes are now surely gone after a problematic year.
"When a season is not going well for you, then nothing goes your way, and it seems that this season we are finding things hard," Marquez told reporters. "There are still four races to go and we will try to be at the front and fight to the end."
It was a double day of celebration for Movistar Yamaha, which lifted its first team title since 2010. Which of its riders will claim the title remains very much undecided.