As Radwanska struggled with a knee injury, Pennetta cruised to a 6-2 6-1 victory in less than an hour and a quarter in the Californian desert.
Better known as a doubles player, Pennetta had contemplated retiring last year after tumbling down the world rankings, but the veteran Italian has rediscovered the fountain of youth.
She reached the semi-finals of last year's U.S. Open and has now won one of the biggest events outside the four grand slams.
"Today was my day and I really enjoyed this moment," Pennetta said at the trophy presentation.
"After so many years of working hard, this is the best moment."
Radwanska went into the match as a slight favorite but was unable to play near her best because of a knee injury that severely restricted her movement.
She called for a medical timeout early in the second set and struggled to control her emotions at the ceremony.
"I'm sorry I could run as much as I could," she sobbed.
"But I had a great week, it was my first final here.
"It's disappointing to lose but Flavia was just playing too good today."
Pennetta beat rising American Sloane Stephens in the quarter-finals and Australian Open champion Li Na in the semis and was never in trouble against Radwanska.
She chalked up 20 winners and saved both break points she faced as she claimed the 10th singles title of her career and her first in four years.
"After so many years and so much work and everything, this is the moment I've always waited for," said Pennetta.
"And it's coming when you don't expect it, because in the beginning of the week I never expected to be the champion or to be in the final or semi-final.
"I was here and tried to play my best tennis...so for me it was something I was waiting a long time, and finally I have a good trophy in my hands."
For Radwanska, it was a forgetful day. The 25-year-old was chasing her 15th career title and her first in Indian Wells but never got into the match and was clearly limping at stages.
"The disappointing feeling always comes first, especially when you really, really have ambition to win the tournament," she said.
"Of course, still good two weeks. First final here. Big event. And still good result. But it's always disappointing that I really couldn't play my 100 percent today."
(Reporting by Julian Linden in New York, editing by Ed Osmond and Gene Cherry)