Cerundolo squandered three match points as Paul served at 2-5 in the decider, one with a net cord, but finished the job in the next game on his serve to win his first ATP 500 title.
He collapsed to the court in relief after pummelling away a smash to end the longest final in the grasscourt tournament's history at three hours and two minutes.
Cerundolo is the first player from Argentina to win the prestigious pre-Wimbledon tournament, and he did it the hard way, winning four of his five matches in a deciding set and spending around 12 hours in total on court.
"Coming from Argentina and winning my first ATP 500 at such an historical event, I could never imagine it," Cerundolo, whose parents arrived during the final to watch him, told the BBC.
"I'm super happy and super proud of myself."
Cerundolo also beat Paul in the final to win his previous grasscourt title at Eastbourne in 2023.
It was an extra special moment for Cerundolo as his father, Alejandro, who has never seen him play overseas because of a fear of flying, was in the crowd.
"He only watched me in Buenos Aires and in Davis Cup. I think they just arrived when I was 5-3 up in the third," he said.
Paul, the Queen's champion in 2024, looked to have got the upper hand in a high-quality duel full of fierce baseline rallies as he won the opening set tiebreak, having broken Cerundolo's serve to love when the Argentine served for the set.
The 29-year-old American was a break ahead in the second set, but his level dipped and Cerundolo took full advantage to send a gripping final into a decider.
Cerundolo looked the fresher player as he moved ahead in the third, and despite a few nerves, he held firm to win his second career grasscourt title.
