The Leicester-based cueist, who trailed 7-10 overnight, triumphed 18-14 on a dramatic final day at the Crucible to become the new World No.1.
Getting past Neil Robertson in a gruelling semi-final and and then stopping O'Sullivan from bagging his third successive World Snooker crown, Selby, 30, is on cloud nine.
"To beat Ronnie in the final to win my first world title is a dream come true," said an a delighted Selby.
An excited Selby, who got richer by 300,000 pounds, dedicated the triumph to his late father.
Five-time champion O'Sullivan paid tribute to Selby's tenacity after losing at the Crucible for the first time since 2011 and the first time in a final.
"I tried my hardest but he was just too good," O'Sullivan said. "I've had some great victories here but losing is part of the sport. I'll go away, lick my wounds and come back and try to be one better next time.
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