The pair waged a fierce baseline duel for the opening two sets, but after taking a 2-0 lead in the third set, Murray crumbled under the Serb's pressure to lose 12 of the last 13 games as Djokovic closed out an emphatic win under the lights of Rod Laver Arena.
Top seed Djokovic sealed the victory on the second match-point, rushing to the net with a searing approach shot that Murray could only dump into the net.
When Djokovic took a 4-0 lead in the final set, he smacked his fist hard against his chest in celebration.
The steely-eyed Serb roared in triumph and went to his player's box to share the win with his team before tearing off his shirt and throwing it into the crowd.
Murray failed to capitalise on three early break points and Djokovic made him pay, leaping to a 4-1 lead.
The loss continued Murray's heartbreak Down Under, where he has now lost four major finals, including three to his friend and fellow 27-year-old Djokovic.
"Tough luck tonight. You are a great competitor," Djokovic, clasping the Norman Brookes Challenge Cup, said at the trophy ceremony.
A protester was stopped on court by security during the men's final, causing a short delay in play during the second set.
Novak Djokovic beat Andy Murray 7-6(5), 6-7(4), 6-3, 6-0 on Sunday to win a record fifth Australian Open title in the professional era and consign the Scot to further grand slam pain Down Under.