The Wimbledon champion only needed 72 minutes to dispose of his old foe 6-4 6-3 as he secured his fifth consecutive success against the Spaniard and the fourth this year, meaning he has now beaten Nadal 15 times in 38 meetings.
The 36-year-old Swiss has lost only four times this year and was in scintillating form in Shanghai, sending down 10 aces to secure the 94th title of a glittering career, moving him level with Ivan Lendl in terms of Open era titles.
With 109, only American Jimmy Connors has secured more titles in the Open era than Federer and Lendl.
Sunday's was the 24th time Federer and Nadal met in a final and the former started on the front foot, breaking the latter's service in the opening game to take control of the first set from the start. Federer then secured his early service hold with three aces and unreturned serve, as Nadal failed to get back into the set.
With little to separate the two in the second set, Federer then broke Nadal in the fifth game after the Spaniard pushed a backhand wide in what turned to be the pivotal moment of the match.
"I played a great match today with hardly any mistakes," said the 19-time Grand Slam winner.
"It was very clear for me how I had to play and I was able to do it for the one hour and 12 minutes that I was out there.
"I started perfectly and kept the pressure on before creating more opportunities on the return, stayed on the offensive, and then also pull back at the right times to make sure Rafa could make some errors on his own and that is exactly what happened."
The win means this year's Wimbledon winner is the only man who can prevent Nadal, who won this year's French Open and US Open, from finishing the year as the world's number one.
"I am actually surprised that I have won here - with all that has happened since Montreal with my back - it is just nice to see that I am back again," Federer added.
"London is my priority now and I really want to win the World Tour Finals. I am very excited to have had the year that I have had and everything that comes from here is a bonus.
"Finishing the year as world number one is a long shot, and I don't think it will happen but if I play like this, who knows? Maybe I will get close again."
Meanwhile, Maria Sharapova clinched her first WTA title since returning from a drugs ban in April this year. The Russian beat Belarusian teenager Aryna Sabalenka 7-5, 7-6 (8) to win the Tianjin Open, her first title in 29 months.
Sharapova trailed Sabalenka 4-1 and 5-1 in the first and second set respectively but fought her way into the game on both occasions.