The redshirts chased down a below-average target of 138 runs in 19 overs, thanks to an injury to Pakistan's top pacer Shaheen Afridi at a crucial point of the slog, which changed the result in England's favor.
All-rounder Ben Stokes once again appeared to be the man of a big moment for England, shattering the world cup dream of Pakistan, who were hoping to repeat the performance of the 1992 World Cup final, when they had defeated England at the same venue.
A poor performance by Pakistan's unpredictable batting side snatched smiles from thousands of supporters who packed the sprawling MCG, appearing completely off-color from the very first ball.
Whether it's skipper Babar Azam or wicket-keeper batsman Mohammad Rizwan or the hitter, Mohammad Haris, they all looked struggling on a placid wicket.
However, Pakistan's stormy bowlers kept English batsmen under pressure, with Afridi striking in the very first over.
Had he not been injured in the 16th over, the result would have been the opposite as England required 41 runs in 29 balls.
Chasing down an easy target, English openers Alex Hales could not repeat his dazzling performance against India in the semi-final, and was bowled by Afraid in the very first over at 27.
Salt who survived an LBW appeal in the second over of Afridi was caught on the mid-wicket in the first over of Haris Rauf. He scored 10 off 9 balls.
But it could not deter skipper Jos Buttler to unleash an onslaught fueled by a slew of boundaries and a six.
But Rauf came in again, sending the in-form skipper to the pavilion at 45 in the sixth over on a swing delivery that took a nick of his bat and landed in the safe hands of wicket-keeper Rizwan.
Harry Brook and Ben Stokes took the score to 84 when Brook was brilliantly caught by Afridi at deep mid-off on an elusive delivery by off-spinner Shadab Khan.
At one point, England looked in deep trouble as it required 41 runs in 29 balls but luck sided with them as Afridi, already struggling from a leg injury, had to walk out limping, leaving Babar with no choice but to use part-timer Mohammad Iftikhar.
Afridi took one wicket for only 13 runs in 2.1 overs.
Taking full advantage of Iftikhar's inexperience, Stokes, who earlier struggled against Naseem Shah and Afridi, went on a rampage hitting one boundary and a six on back-to-back deliveries.
Vice Captain Moin Ali took the charge from the other end, hitting two back-to-back boundaries, and a third on the last ball of the 17th over delivered by young Mohammad Waseem.
Waseem bowled Ali in the 19th over but it was too late as the men in red needed only 6 runs off 10 balls
Stokes again appeared to be the man of the big occasion, hitting a much-needed 50, powering England to lift the title after 2010. He remained not out on 52 off 48 balls.
With this victory, England became the second team after West Indies that have won the T20 World Cup twice. In 2010, England beat Australia to clinch their first T20 World Cup title.
Earlier, Buttler won the toss and elected to field, a decision proved right following an unimpressive start by the green shirts.
The green shirts scored only 39 runs in the first six overs, failing to take advantage of the power-play
Pakistan lost the first wicket on 34 when Rizwan was bowled by Sam Curran.
Mohammad Haris was second to go at 45 when he was caught by Ben Stokes at deep mid-on on an elusive delivery by Adil Rashid.
Pakistan completed their first 50 runs in 8 overs.
Captain Babar Azam tried to build a partnership with Shan Masood, however, Rashid struck again sending the skipper back to the pavilion at 84 in the 12th over. Azam scored 32 off 28 balls before he was caught and bold by Rashid.
Iftikhar Ahmad was next to fall prey to Stokes for a duck. He faced six deliveries.
Shadab Khan and Masood took the score to 121 in the 17th over when Curran struck, breaking a fledgling partnership. Masood, who hit 37 off 28, was caught in the deep mid-wicket by Livingstone.
Wickets continued to fall for Pakistan as Shadab gave an easy catch on mid-off on a straight delivery by Chris Jordan. He hit 20 off 13 balls.
Curran bowled Mohammad Nawaz, again a simple catch on mid-wicket in the 19th.
Curran, who was declared man of the match, finished with 3 wickets for 12 runs in his four overs.
Rashid and Jordan took 2 wickets each.
Source: Anadolu Agency