Fans packed into Madrid's WiZink Center, home to the Real Madrid Basketball team, jumped up and down, waved Spanish flags and sang loudly after the final whistle blew.
Co-hosted by Australia and New Zealand, the ninth edition of the Women's World Cup was the first to be held in the southern hemisphere.
Olga Carmona's goal put Spain ahead in the first half and they created the majority of the clearcut chances in the match.
"It's very exciting," said Mercedes Guzman, 54, who watched the match in the WiZink Center.
"They're a super solid team and this is huge progress for women's sport."
"As a soccer fan I'm super happy that Spain is the best in the world again," said engineer Jorge Martin, 33.
Spain's Queen Letizia and Princess Sofia were in Sydney for the match. Afterwards, Queen Letizia hugged each player before they were handed the trophy.
The Spanish Royal Family was quick to celebrate, writing on their official X, formerly Twitter, account "You are the best football players in the world, this is FOOTBALL and this is HISTORY!"
Spanish Prime Minister Pedro Sanchez also sent his congratulations, writing on X "You have made history. You are a source of pride. You are an inspiration. You are GREAT".
Spain, missing some of their best talent after a mutiny against coach Jorge Vilda only a few months ago, were thrashed 4-0 by Japan in the group stage, but progressed steadily through the stages and ultimately outplayed England in the final.