Allen, who had never won in two decades on the PGA Tour, finished first in his seniors debut. Its the first major of the year for players over 50 years old.
After hitting close on the 18th hole, he mugged for a camera and said, About friggin time! while laughing.
Bruce Fleisher had a 67 to finish third. Tom Watson, who began the day seven strokes behind Allen, had the low round of the day ' a 66 ' and was fourth.
Allen became only the fourth player to win a major championship in his Champions Tour debut, joining Roberto De Vicenzo (1980 U.S. Senior Open), Arnold Palmer (1980 Senior PGA Championship) and Jack Nicklaus (1990 Tradition).
Allen drilled a long drive into the fairway on the last hole. His 55-degree wedge approach landed just short of the flag and spun back a few feet below the hole. Needing only a two-putt to win, he rolled in the birdie putt and was embraced by his caddie, family and friends.
Allen collected $360,000 for his first win of any kind since the 1998 Greater Austin Open on the Nationwide Tour. His only other win came in the 1989 Bells Scottish Open on the European Tour.
But he had never won since joining the PGA Tour in 1988 and playing fulltime for 12 seasons. He had played a dozen regular tour events this year, his best finish being a tie for 22nd at the AT&T Pebble Beach.
His biggest paycheck was $648,000 for finishing second at the 2007 Turning Stone Resort Championship.
He had received a special exemption to play in the Senior PGA and bypassed the Byron Nelson on the PGA Tour.
Allen, who began the day with a one-stroke lead on Tom Kite and Jeff Sluman, had a double-bogey and four bogeys in his first-round 74 but was 9 under with just two bogeys over the next 49 holes as he climbed the leaderboard. Long and accurate off the tee, he seldom found trouble and relied on a steady short game around the high rough and quick greens at stately old Canterbury Golf Club in suburban Cleveland.
Sluman closed with a 73 and was at 281 along with club pro Chris Starkjohann (70), Fred Funk (70) and Gil Morgan (73). Defending champion Jay Haas had a 69 and led the pack at 282. Kite was never able to mount much of a threat and closed with a 75.
A two-shot swing at the par-4 12th hole ' Allen holing a 6-foot birdie putt and Mize bogeying after hitting into the deep rough off the tee ' put Allen ahead. He quickly gave away the advantage when he was too cautious when hitting a wedge from behind the green and made bogey at the 14th.
At the par-5 15th, Allen drove into the deep hay left of the fairway and had to power a long iron underneath an overhanging tree to get back to the fairway. From there he chipped to 10 feet right of the hole and confidently rolled in the birdie putt to grab the lead for good.
He still wasnt in the clear, however. He hit a lengthy drive on the 616-yard signature 16th, then elected to go for the green. His 3 wood went through the landing area and ended up in the thick rough on the upslope to the green. But he chipped to 15 feet and barely missed the birdie putt, tapping in for par.
Mizes long uphill birdie putt at the par-3 17th ' the toughest hole on the course ' burned the edge, leaving him a shot back.
He drove down the middle at the uphill par-4 18th, moments before Allen, who was playing in the final group behind him, stepped to the tee at 17. Allens long iron to the raised green was on line but bounded to the back fringe. He ran his first putt a few feet past, but rapped in the comebacker for par.
Mizes second shot to the 18th came up short and right. He elected to putt and rammed the 70-footer some 15 feet by. Then he calmly rolled in the par putt to remain within a shot.
Watson birdied four of the first eight holes to get to even par for the tournament, causing some rumblings in the large gallery following him. But two bogeys early on the back nine cost him, even though he hit to 3 feet on the final hole for his sixth birdie.
Fleisher, five years removed from his last win on the Champions Tour, played the final 14 holes at 4 under.