Pramac Racing's Martin, who was 14 points behind Bagnaia going into the final race, made the title race tighter by winning Saturday's sprint but was ultimately unable to thwart the Italian.
Bagnaia, who began the race on pole after Maverick Vinales was handed a three-place penalty, had an excellent start but was matched in the first two laps by Martin, who moved up from sixth into second by turn two of the race.
However, Martin was reckless in his eagerness to overtake Bagnaia, and a coming-together between the two on turn one of the third lap resulted in the Spaniard being forced wide and dropping down to seventh.
Martin threw caution to the wind at the Circuit Ricardo Tormo and tried to surge back up the leaderboard, but clipped Marquez's rear and was left in the gravel on lap six.
The crash ensured a dismal end to six-time MotoGP champion Marquez's tenure at Honda, with his final race for the Japanese manufacturer ending in a non-finish. Marquez will join Gresini Racing in 2024.
Martin congratulated Bagnaia for the win in a post-race interview.
"We arrived here with a big distance, so hopefully next year we can work harder and leave Valencia with a championship in our hands," Martin added.
Italian Prime Minister Giorgia Meloni also sent her own congratulations.
"An extraordinary Francesco Bagnaia wins in Valencia and becomes world champion for the second year running," she wrote on social media platform X above a photo of a jubilant Bagnaia.
"You made us dream again this year. Pride of Italy," she added.
'IMPOSSIBLE TO GET ANY BETTER'
KTM's Jack Miller led the race for a significant period after overtaking Bagnaia in the 15th lap, with the Italian rider content to concede the lead, but the Australian crashed hard in the 20th lap to throw away his shot at the chequered flag.
"Amazing, I don't have many words now. It was a long race, 27 laps of struggle because I didn't feel good in the front," said Bagnaia, wearing three gold rings on his fingers for his two MotoGP championships and one Moto2 win in 2018.
"I let the KTM riders past and then the feeling became better, maybe because the pressure or the temperature changed.
"From that moment I was able to push, but in the last few laps I was completely without tyres, but we did it. It was quite tough, but we did it. We won the title, we won the race, it's impossible to get any better than this."
With clear track in front of him, Bagnaia crossed the finish line first to seal the title in emphatic fashion, though he had to hold off Gresini Racing's Fabio Di Giannantonio and Pramac Racing's Johann Zarco - who finished second and third.
"I was pushing so hard and I had amazing pace. I really believed I could win," said Di Giannantonio, who won last week's Qatar Grand Prix and will be leaving Gresini at the end of the season.
"I wanted to leave the team with a win, but in the last laps Bagnaia began to close the lines."
Marco Bezzecchi of VR46 Racing, Ducati's Enea Bastianini and GasGas Factory Racing Tech3's Augusto Fernandez were also unable to finish the crash-filled race.
