Joshua had his Cameroonian opponent on the canvas in the first round and twice more in the second in a brutal and brief exhibition of punching power.
Ngannou, a former UFC heavyweight champion, was taking part in only his second professional boxing match, having lost a split decision to Tyson Fury in an October fight that saw him put the WBC champion on the canvas in the third round.
"I thought this fight was something for the broadcasters to get behind," Joshua told broadcaster DAZN after his quickfire victory.
"When I saw the fight with Tyson Fury, I thought, 'I want some of that'. He is a great champion and this doesn't take anything away from his capabilities.
"I told (Ngannou) not to leave boxing. He's two fights in and he fought the best."
Joshua, a former unified WBO, WBA and IBF heavyweight champion, went into the fight on the back of three successive wins.
Before that, however, he lost back-to-back fights to Oleksandr Usyk, who will fight Fury for the undisputed heavyweight title in Saudi Arabia in May.
The fight only got underway at 3:30 am local time, but weary fans enjoyed a sensational start when Joshua quickly sent Ngannou to the canvas in the opening round with a brutal right to the chin.
It got worse for the Cameroonian when he was knocked down again in the second round, just managing to beat the count.
But his resistance lasted just a few more moments after he was sent to the canvas again for the third and final time.
He lay on his back for some time and needed medical treatment inside the ring before being helped back to his stool.
Joshua was reportedly being paid $50 million for his clash with Ngannou, whose rags-to-riches story had captivated the sport.
The MMA star grew up in abject poverty, working as a child labourer in a sand quarry for under $2 a day.
Ngannou then made his way to Europe, even sleeping rough in a car park in Paris before a local coach took him under his wing and guided him to boxing.
