The end of regulation was a wild affair as four players were tied for the lead on the 18th tee with three-time defending champion Ernie Els one behind.
Simon Dyson (68) and Jarrod Lyle (71) bogeyed the 72nd hole to fall to 13-under-par 271. Els' ball found the grandstands at 18 and he left with a bogey to shoot 1-under 70. He finished at minus-12 for a solo fifth.
Parry and O'Hern parred the closing hole at The Royal Melbourne Golf Club to finish regulation knotted at 14-under-par 270. Parry shot a 1-under 70 while O'Hern managed an even-par 71 in the final round.
The playoff, the first in tournament history, began at the 18th and O'Hern had the advantage. He had a short putt for birdie, while Parry found a greenside bunker with his approach. Parry left himself with a long par putt, but drained it to put the pressure on O'Hern. The left-hander missed the birdie putt and it was back to No. 18 tee.
On the second playoff hole, O'Hern regained the upper hand as he was inside 10 feet for birdie. Once again Parry sank a par putt, but once again O'Hern was not able to close out his first victory on the European Tour.
The duo halved the 17th and returned to the 18th for the fourth time in almost an hour. O'Hern drove into the rough, but knocked his approach to 10 feet. Parry's second stopped 12 feet from the hole and he converted the birdie try. O'Hern missed for the third time in the playoff from inside 10 feet at 18 and Parry claimed his sixth win on the European Tour.
This is another memorable playoff victory for Parry. Last year at the Ford Championship at Doral on the PGA Tour, he holed a 6-iron from 176 yards for an eagle to defeat Scott Verplank on the first playoff hole.
The back nine on Sunday saw several lead changes, but Lyle and O'Hern shared a two-shot lead with five holes to play. O'Hern stumbled to a bogey at 14 to fall one back, then Lyle, a 23-year-old who turned professional last year, drove into the trees at 15 and also dipped to minus-14.
Dyson joined the group at 14-under par with a birdie at 16, then Parry, who bogeyed three of his first four holes on the back nine, got back into the mix with an 18-foot birdie putt at No. 17.
That set the stage for the par-4 closing hole, but it was more of a situation where players fell down the leaderboard and Parry and O'Hern survived.
Dyson, who played with Els in the group ahead of Parry, O'Hern and Lyle, dumped his approach at 18 into a greenside bunker and failed to get up and down for par.
Els, who could have become the sixth player in golf history to win the same event four consecutive times, knocked his approach into the gallery. He got a drop, but could not save par.
Lyle, who struggled with the driver on the back nine, found the rough on the left side with his tee ball at 18. He bogeyed the hole, but showed he will be ready to win in the near future.
'It was all pretty much a blur,' admitted Lyle. 'I was so happy I was able to take on the whole field for so long.'
That left the stage for Parry and O'Hern. O'Hern had a look at birdie, but missed by almost 5 feet. Parry's putt failed to find the bottom of the cup as his 28-footer came up 2 feet short. O'Hern made his and then Parry finished him off four holes later.
Trevor Immelman (69) and Henrik Stenson (70) tied for sixth place at 11-under par 273. Peter Lonard, who shared the second-round lead with Colin Montgomerie, shot a final-round, even-par 71 to join Simon Kahn (66) in eighth at minus-10.
Camilo Villegas posted a 1-under 70 and took 10th at 9-under-par 275.
Montgomerie carded an even-par 71 on Sunday and tied for 11th place at minus-8.