Webb carded a 2-under 69 Sunday to finish the tournament at 14-under 270. It was her fifth major title in the last eight played on the LPGA Tour and her second in a row, as she blew away the field three weeks ago at the U.S. Women's Open.
With the win, Webb joined Mickey Wright, Louise Suggs, Pat Bradley and Juli Inkster as the only players to win four different majors in their LPGA careers.
'It's very overwhelming,' said Webb, who has won her last four major titles by a combined 25 strokes. 'It happened so quickly. This is the dream of all dreams. One day, it will sink in, but right now I'm at a loss for words.'
Last year, 24-year-old Tiger Woods became the youngest player to complete the Grand Slam when he won the British Open at St. Andrews. Webb is two years older, but needed seven fewer majors than Woods. After his first major victory at the 1997 Masters, Woods played in 14 more before he joined professional golf's elite. Webb needed only eight major tournaments to complete her Slam.
Webb walked into the final round with a three-shot edge over Diaz and Maria Hjorth but the lead was cut to two when Hjorth rolled home a 10-foot birdie putt at the opening hole.
From there, most thoughts of a comeback were quickly erased. Webb rattled off three birdies in a row, starting at the 2nd. She made putts from four feet, six feet and 18 feet to extend the lead to as many as six.
At the 8th, Webb dropped her first shot of the final round when she hit a 5-iron left of the green and missed the eight-foot save. She regained the lost stroke at the next hole with a 20-footer for birdie.
Diaz began to make things interesting around the turn. She holed an eight-foot birdie at the 9th and followed with a 15-footer at the next. Diaz drained a pair of 10-foot birdie putts at 11 and 12 and cut the lead down to three.
Webb collected six pars to open the back nine and when Diaz birdied the 17th, Webb countered with a 15-foot birdie at 16.
The lead was momentarily two when Webb bogeyed the 17th after she missed the green short and landed in a bunker. She blasted out to eight feet but two-putted for the bogey.
Diaz ran into trouble at the final hole. She drove into the right rough and then hit her 6-iron approach into a greenside sand trap. Diaz blasted out to six feet but missed the save to drop to 12-under, three shots behind the leader.
Webb did not play the 18th a whole lot better than Diaz. She missed the fairway left off the tee and then pushed a 6-iron right of the putting surface. Her delicate chip ran by the hole five feet where she missed the comeback, but tapped in to win the tournament by two.
The historical triumph for Webb was the talk of the tournament Sunday.
'To do it a year ahead of Mickey Wright, at a time when the depth of talent is the best it's ever been, will ultimately go down as one of the biggest achievements in women's golf,' said LPGA commissioner Ty Votaw.
'As far as pure golf, she's the best I've ever seen,' said Inkster, who was the last player to earn the career Grand Slam when she won the U.S. Open and LPGA Championship in 1999. 'She makes it look so effortless. I can't believe anybody could be as good as Karrie. If she keeps up this pace, she's going to shatter all the records.'
'Awesome. That sums it up right there,' said Diaz.
Webb almost withdrew from the tournament Sunday morning because her grandfather suffered a stroke a few days prior. She had booked a flight to leave with her parents Sunday afternoon but her father spoke with the family and they thought that her grandfather would want her to stay.
'I really didn't do it for myself today,' said Webb, who earned $225,000 for the victory. 'I did it for my grandad and I know it might not help out the situation, but my grandma told me on Thursday that she wanted me to win it for him.'
Karrie Webb comments on her Career Grand Slam
The next major for Webb will be the Women's British Open at Sunningdale Golf Club in August. Webb won the British Open, which replaced the du Maurier Classic as a major this year, at Sunningdale when she was only 20.
Diaz shot a 3-under 68 on Sunday but failed in her attempt at becoming the first player since Se Ri Pak in 1998 to make a major championship her first victory.
'I think from my perspective, it's another second and in a way, that's just because I'm still aching for that first win.'
Hjorth and Wendy Ward shared third at 10-under 274. Hjorth's chances faded at the 15th, when she carded a double-bogey and finished with a 1-under 70. Ward, the first-round leader, posted a 2-under 69 Sunday.
Annika Sorenstam, the winner of 2001's first major, the Nabisco Championship, birdied three of her last four on Sunday for a 67 and fifth place.
Becky Iverson and Laura Davies shared sixth at 8-under par. Had Davies won this event, she would have become eligible for the LPGA Hall of Fame.
Full-field scores from the McDonald's LPGA Championship