'This means an awful lot to me,' said Montgomerie. 'It means confidence to me. I lost my confidence last year and I have it back now.'
Overnight co-leader Gregory Hanrahan managed only an even-par 72 to take second place alone at 13-under-par 275. Jyoti Randhawa and Nick O'Hern were one shot further back at 12-under-par 276.
Montgomerie had plenty of energy left for the final round at Laguna National and got the start he needed with birdies on each of his first two holes.
The Scot added a birdie at the par-3 fifth and pulled within one of the lead with a birdie at the par-5 seventh.
As the leaders struggled on the inward half, Montgomerie took advantage of the opportunity and knocked his approach to seven feet at the par-4 13th. He then drained the birdie putt to take the outright lead at minus-14.
At the par-5 15th, Montgomerie played his third to nine feet and ran home the birdie putt. Just like that, the former Order of Merit champion had opened a three-shot lead over his closest competitors.
Montgomerie sealed the victory with a remarkable tee shot at the imposing 17th. While water had led to disaster for many at the par-3 this week, Montgomerie landed his tee ball within three feet of the cup and tapped in for his seventh birdie of the day.
The 40-year-old closed with a par at the last for his first European Tour title since he shared the Volvo Masters Andalucia with Bernhard Langer in 2002.
'I knew I had to score 65 today at least,' said Montgomerie. 'To actually go out and have a number, a good number because the pins were tight today, and actually achieve it is very, very satisfying.'
Hanrahan, a veteran of the Asian PGA Tour who was seeking his first win on the European circuit, had an uneventful start to his round with nine straight pars.
The American missed the green at the 10th en route to a bogey to fall one shot off the lead. He never recovered to catch Montgomerie, but Hanrahan sank a seven-foot putt for a birdie at the 15th for a second-place finish.
Barry Lane, who shared the 54-hole lead with Hanrahan, held the top spot on the front nine at 14 under thanks to two birdies and a bogey over his first five holes.
The Englishman dropped a shot at the ninth, however, and continued to struggle on the back side on his way to a round of 75.
Lane was joined by Patrik Sjoland and Ter-Chang Wang in a tie for fifth at 10- under-par 278.
Singapore's own Mardan Mamat followed at 9-under-par 279 along with Brett Rumford.