The three-time defending champion beat his long-time rival 6-3 6-4 in a one-sided title match at the O2 Arena which lasted just 81 minutes.
Hopes had been high that Swiss maestro Federer could land his seventh title at the prestigious end of season showpiece after beating Djokovic in straight sets in group section play last Tuesday.
But Djokovic adopted more aggressive tactics for the final: "I had to change something," he admitted after sealing victory when Federer double faulted.
Djokovic has landed three grand slams, a record sixth Masters 1000 titles and now the lucrative finale to the ATP season to cap a remarkable 2015 which he recently admitted has been his best.
Federer, who would have gone to world number two above Britain's Andy Murray with victory, forced an early break point in the first game, but soon fell behind as Djokovic broke at 1-1.
Djokovic had to save a further break point in the fifth game, but wrapped up the set as he broke through again on the Federer service while leading 5-3.
It gave him the crucial advantage of serving first in the second set and he did not face another break point as he led from the front.
By contrast, Federer was coming under more constant pressure on his own delivery, and he finally cracked in the 10th game.
Djokovic is the first man to win four straight ATP World Tour Finals and also took the crown in 2008. He has also drawn level with Federer in their head to head at 22 wins apiece and has a remarkable 82-6 win record for the year.
"It could not have been a better finish to what has been a very long season but the best of my life," he said.
He will now take a break before beginning preparations for a crack at his 11th grand slam title as he defends his Australian Open crown in January.
Seventeen-time grand slam champion Federer, who pulled out of last year's final against Djokovic with a back injury, conceded he had lost to the better man.
"It is never fun on the not winning side, it is better than not playing at all like last year," he said.
"This week was great, there were some crazy points tonight, but like plenty of times this year Novak deserved it.
"Well done on a crazy good year."
Earlier, Jean-Julien Rojer and Horia Tecau wrapped up the doubles title with a 6-4 6-3 win over Rohan Bopanna and Florin Mergea, capping a memorable first season as a partnership by claiming the world number one spot.
The second seeds, who had beaten previously top ranked Bob and Mike Bryan in the semifinals, were always on top after taking the first set with a single break and then moved clear with two more breaks in the second set.