The indomitable Serb stretched his unbeaten streak this season to 13 but he had to rally from two sets to one down to beat the courageous fifth-seeded Austrian 6-4, 4-6, 2-6, 6-3, 6-4 in a nearly four-hour marathon, AFP reported.
It was his 17th Grand Slam title, moving him within two of Rafael Nadal and three of Roger Federer on the all-time list.
"Definitely my favorite court, my favorite stadium in the world and I'm blessed to hold this trophy once again," said Djokovic.
Victory put him alongside his fellow legends as only the third man in history to win eight or more titles at the same Slam after Nadal (12 at the French Open) and Federer (eight at Wimbledon).
It also ensured he will once again be world number one when the new rankings are released today, usurping Nadal. Federer remains third with Thiem moving up a place to a career-high fourth.
Djokovic had never before won a Slam final in seven previous attempts when finding himself two sets to one down.
"You and two other guys (Nadal and Federer) brought men's tennis to another level. I am happy I can compete in these times," said Thiem.
"I fell short today but I hope soon I can compete with you again."
'King of Melbourne'
With Thiem getting plenty of support throughout in the Rod Laver Arena, Djokovic celebrated by shushing some of the crowd with his finger on his lip and then pointing to his box, BBC Sport reported.
Djokovic solemnly watched as he was lauded as the 'King of Melbourne' before an emotional winning speech where he talked about the "devastating" Australian bushfires, world conflicts and the death of American basketball great, and his "mentor", Kobe Bryant.
"I would like to say this is a reminder that we should stick together more than ever," Djokovic told the 15,000 crowd.
"Stay close to the people who love you. There are more important things in life.
"It wasn't meant to be tonight," Djokovic told Thiem.
"Tough luck. It was a tough match. But you were very close to winning it.
"You know, you definitely have a lot more time in your career and I'm sure that you will get one of the Grand Slam trophies. And more. More than one."