Spain’s Alcaraz, 20, fought back from a nervy start to win 1-6 7-6 (8-6) 6-1 3-6 6-4 against the defending champion.
Djokovic was going for a fifth straight win, an eighth men’s triumph and a 24th major – all record-equalling feats.
But the 36-year-old Serb was outlasted by top seed Alcaraz, who underlined his class by winning a second major title.
“It is a dream come true for me,” Alcaraz, who was playing in only his fourth grass-court tournament, said.
“Even if I lost, I would have been proud of myself. To be able to play in these stages of these occasions – as a boy of 20 years old – is really fast.
“I’m really proud of myself.”
Alcaraz, who won his first Grand Slam title at the US Open last year, celebrated by falling flat on his face after taking his first match point and kicking a ball into the crowd.
The majority of a packed Centre Court, which included the Prince and Princess of Wales, actor Brad Pitt and two-time winner Andy Murray, rose to their feet to acclaim the All England Club’s newest champion.
As tradition now dictates, Alcaraz ran up the stairs from the court to his box and embraced coach Juan Carlos Ferrero, along with his family and friends.
Alcaraz is the third youngest man to win the Wimbledon title in the Open era after 17-year-old Boris Becker in 1985 and 20-year-old Bjorn Borg in 1976.
“You never like to lose matches like this but I guess when all the emotions are settled I have to still be very grateful,” said 23-time Grand Slam champion Djokovic, who broke down in tears during his on-court speech.
“I won many tough matches here. Maybe I have won a couple of finals I should have lost so maybe this is even-steven.
“It is a tough one to swallow when you are so close. I lost to a better player, I have to congratulate him, and move on – stronger hopefully.”
Before an eagerly anticipated men’s final between the top two seeds, Djokovic further ramped up the excitement by predicting a “feast” between a pair with equally “hungry” appetites for success.
A compelling contest – full of quality, drama and momentum swings – lived up to the hype.
The pair have been two of the leading players on the ATP Tour this year and jostled for position as the world number one.
Djokovic won the Australian Open and French Open this year to move ahead of Rafael Nadal’s tally of 22 major titles, knowing another victory would equal Margaret Court’s all-time record of 24 victories.
At the opposite end of the career scale, Alcaraz was aiming to prove not all of the younger generation can be overawed by Djokovic’s greatness.
The Spaniard had already been dealt a chastening experience when facing Djokovic, having suffered body cramps during their French Open semi-final last month because he was so overcome by nerves.
One of the plotlines going into the Wimbledon final centred on Alcaraz’s state of mind.
Alcaraz was confident that fear was out of his system going into Sunday’s showpiece – but that did not look to be the case in a one-sided first set, which Djokovic won after just 34 minutes.
Djokovic suffocated his opponent with his deep and consistent returning, forcing Alcaraz into hurrying his shots and making too many mistakes.
Alcaraz slowly grew into the contest, finding more rhythm with his groundstrokes and introducing an increasing number of the drop shots for which he is becoming known.
After turning the deficit into a lead, helped by edging a mammoth 27-minute game early in the third set, Alcaraz produced two loose errors at a crucial time in the fourth and Djokovic went on to level.
However, Alcaraz’s composure returned in the decider.
He broke for a 2-1 lead which led to Djokovic smashing his racquet on the net post and, continuing to play with power and variety, served out a stunning victory after four hours and 42 minutes.
The tears from Djokovic after the match were indicative of the physical and mental effort he puts into creating even more history.
The defeat meant he was unable to equal Roger Federer’s men’s record of eight Wimbledon titles and Court’s all-time record of 24 major wins.
Djokovic also saw two mind-boggling runs – 34 successive match wins going back to 2017, and 45 straight victories on Centre Court stretching back to 2013 – ended by Alcaraz.
Despite the disappointing manner of the loss, there was plenty to suggest the veteran is still well placed to at least equal Federer’s and Court’s tallies.
His game, physicality and elasticity remain as good as ever.
“I hope this will be the beginning of a rivalry for some time – for my sake,” said Djokovic on the prospect of more duels with Alcaraz.
“He’s going to be on the tour for quite some time. I don’t know how long I’ll be around.
“I hope we get to play at the US Open. I think it’s good for the sport, one and two in the world facing each other in a five-hour, five-set thriller.
“It couldn’t be better for our sport.”
