In 2001, Lietzke closed with a final-round 66, but this year he was able to claim the title as overnight leader Andy North struggled to a 76 on the last day.
North, who took a lead into the final round for the first time since joining the Senior Tour in 2000, remains winless in 67 starts on the Senior Tour. His last win came at the 1985 U.S. Open at Oakland Hills.
Lietzke trailed first-round leader Jim Thorpe by eight strokes. However, Lietzke blazed to the title, posting a 14-under 130 over the final two rounds.
'This is the first time I have ever defended a title,' said Lietzke, who became the first person on the Senior Tour to defend a title in 2002. 'That's what keeps me playing golf, having the chance to accomplish something like that.'
In Sunday's final round, Lietzke carded six birdies with one bogey. Rachels and Morgan also closed with 67 at Prestonwood Country Club. Watson finished with a 69 to get to 10-under 206.
Lietzke started the day slowly with pars at the first three holes, then bogeyed the fourth. He started to gain momentum for the title run with a birdie on the fifth.
'I was nervous teeing off today,' said Lietzke. 'I think all three of us in the final group were nervous. I could tell Andy was uncomfortable.'
North bogeyed Nos. 2 and 3, but was able to get one of those back with a birdie at the par-5 seventh. Lietzke, meanwhile, began to make his charge with birdies at 8 and 9.
Lietzke continued his run by birdieing both par-5s on the back side. He birdied the 12th and 17th, the par-5s, and birdied 18 to seal the victory. It was his par save from deep rough on 15 that keyed his final round.
'The birdies at 8 and 9 were big and gave him the lead,' said Lietzke. 'The up-and-down at the 15th kept my momentum. I couldn't let myself relax until I hit the second shot on the green at 18.'
Lietzke has hit 96 of 108 greens in regulation over the last two years of this tournament, and he credits his putting in helping him earn back-to-back titles.
'I putted beautifully this week,' Lietzke said. 'A lot of guys had to start putting defensively because the greens really dried out. The greens got really fast today and some putts could have gotten away from you.'
Lietzke claimed his third win on the Senior Tour this season and his fifth on the circuit. Though this is his first title defense, Lietzke had posted second victories at four PGA Tour events.
North's fall from the top was completed with a bogey on the 13th and a triple bogey on 16. On 16, North hit his drive right and into water. One day earlier, North had established a 36-hole record with a 10-under-par 134.
Rachels made a strong run on the back nine to climb into second place. After making the turn at 1-under, Rachels posted four birdies on the back nine to get to minus-10 for the tournament.
'After the 11th hole, my caddy and I stopped reading putts,' said Rachels. 'I had two putters in my bag today. This is the first good tournament I've had in a while.'
Tom Purtzer closed with a 70 to finish fifth at 9-under 207. John Bland, Jim Ahern and Wayne Levi followed at minus-8, while Bruce Fleisher and Don Pooley tied for ninth at 7-under.
Fleisher, who closed with a 69, ran his streak of consecutive rounds of par or better to 27. Larry Nelson holds the tour record at 32, which he accomplished in 2000.
Final scores from the SAS Championship