Pak shot 1-under 70 at the DuPont Country Club, while Daniel struggled to a 6-over 77. As a result, the 24-year-old South Korean collected her fourth career major title, and her second in this event.
Pak finished at 5-under-par 279, three shots clear of Daniel, who started the day with a four-stroke lead over the field.
'This is the most special tournament. This is my first time winning,' said Pak, who won the LPGA Championship as a rookie in 1998. 'I didn't push myself at all. I was swing solid and putting great. I just did my best every day and I had a great score.'
Annika Sorenstam, who won the seasons first major at the Kraft Nabisco Championship, fired the low round of the tournament, a 6-under 65, to finish third at even-par 284.
Defending champion Karrie Webb tied two-time LPGA champion Juli Inkster for fourth place at 1-over. Webb, playing in the penultimate group, never factored Sunday, shooting 3-over 74.
Pak collected $225,000 for her second victory of the season (Office Depot). She now has 15 career tour titles, and needs only to win the Kraft Nabisco to complete the career Grand Slam.
Daniels first and only major victory came at this event in 1990. The 45-year-old Hall of Famer has won 32 times on tour, but not since 1995. She was trying to become the oldest player in tour history to win a major championship, but could never find her footing Sunday.
Daniel squandered her overnight advantage of four by making the turn in 2-over 37, while Pak shot 1-under 34. Daniel recorded eight birdies and a double bogey at the par-3 fifth to drop to 6-under.
One back, Pak stuffed her approach shot to two feet on the par-4 10th, as Daniel scrambled to a bogey-5. The two-shot swing gave the 98 Rookie of the Year her first lead of the tournament.
Daniels deficit stretched to two after she missed the fairway at the 12th and had to waste a stroke by punching out into the fairway. The bleeding continued as she missed the green at the par-3 13th and chipped 35 feet past the pin.
A Pak par at 13 gave her a three-shot cushion. And when she rolled in a six-footer for birdie at the next, the lead was four with four to play.
'What a lousy day. I think the ghost of Babe Zaharias stepped on my ball,' said Daniel, who fought back tears and snapped at a reporter who asked her to describe the double bogey she made on No. 5.
Zaharias remains the oldest major champion on the LPGA Tour, winning the 1954 U.S. Women's Open at 42 years, 11 months.
Final results from the McDonald's LPGA Championship