After 30 lung-busting laps, Finke touched the wall in 14 minutes, 30.67 seconds at La Defense Arena, eclipsing Sun Yang's 12-year-old mark of 14:31.02 set at the London Games.
Italy's Gregorio Paltrinieri took silver, 3.88 seconds behind Finke, with Daniel Wiffen, the 800m gold medallist, taking the bronze for Ireland.
"I could see the world record line on the board a couple times," Floridian Finke told reporters.
"It wasn't like I was trying to see it. I just happened to see it.
"I'm just happy I won. I had a lot of pressure going into the race."
The 24-year-old became the first male swimmer to go back-to-back in the most gruelling pool event since Australia's Grant Hackett in 2000-04 and the first American since Mike Burton in 1968-72.
Finke was also the defending champion in the 800m, but Wiffen beat him to become Ireland's first male Olympic swimming champion.
Finke's 1,500m win was a vital boost for the U.S. team whose men had not won a single individual gold before the race and were under the microscope from home media.
"I was reading all the articles and all the comments and everything," he said.
"I like reading that stuff. It kind of motivates me inside.
"As much as it sucks that we're not dominating anymore, I think it's good for the sport and it shows how far the sport has come."
Finke's win gave the U.S. their seventh gold medal of the meet, the team leapfrogging Australia to the top of the table on the last night of competition.
The U.S. women then cemented top spot with an eighth gold in a dominant medley relay to cap the evening.
Finke marked his place among the titans of distance swimming with an aggressive swim which he led from start to finish.
He was a full body length ahead of Paltrinieri and Wiffen by the 300-metre mark.
Paltrinieri made a charge near the 600-metre mark and pulled up to Finke's waist, but there was no stopping the American.
Ireland's first men's Olympic swimming champion, Wiffen had tipped a world record would be needed to take gold and hoped he would be the man.
It was Finke, though, producing something special to hold on for the world record and send the La Defense Arena crowd into hysteria.
"I really wanted to get on top of the podium again and hear the anthem all over again like I did for the first time in Tokyo," said Finke.
"So to be able to do that, listen to it and hand over my heart, it was a dream."