Singh erased a three-shot lead over three holes and the two were knotted at 12 under par. They were on the 18th at Bay Hill Golf Club & Lodge and Singh was first to play from the fairway. His 7-iron approach got caught up in the wind, hit a rock guarding the putting surface and bounced into the pond.
Perry, in the first cut on the left side, played it safe from there. His 7-iron approach came up 50 feet short and left of the flag. Singh took his drop then hit his fourth over the green.
'He was posing over there so it stunned me when it came up short,' admitted Perry, who pocketed $900,000 for the win. 'It was a big break for me because all I did was aim left. I knew I could three-putt to win the golf tournament.
'I was expecting him to hit it close. He's one of the best we've got out here. He was putting heat on me all day. I couldn't shake him.'
Perry posted a final-round, 2-under 70 to win the tournament at 12-under-par 276.
Singh can find solace in the fact that after a two-week stint in second, he returned to the No. 1 spot in the world rankings. He shot a 3-under 69 to tie for second place with Graeme McDowell, who fired a 6-under 66 in the final round. The duo tied at minus-10.
Since Singh shared second place with one other person, and Tiger Woods finished outside the top-eight, Singh reclaimed the top spot.
It was not that much of a consolation for Singh.
'Well, big deal, I lost the golf tournament,' said Singh. 'I just want to win the golf tournament. I really wasn't worried about the ranking. It's a shame that's happened, but you've got to look forward.'
This is the second week in a row that Singh has made a crucial mistake down the stretch. Last week in a playoff against Padraig Harrington at the Honda Classic, Singh missed a 3-footer that could have extended the extra session.
But Singh, who admitted he pulled the wrong club on 18, realizes that his game is strong heading toward next week's Players Championship, then the Masters in three weeks.
'I'm playing well and I'm looking forward to next week and two weeks down, the Masters,' said Singh. 'My game is just coming around. Hopefully it's going to be on for next week.'
McDowell's finish got him into the Players Championship next week as he will move into the top-50 in the world rankings. He will move into the mid-to-low 40s and if he stays above the top-50 after next week, McDowell will get his first invitation to the Masters.
'It would just be a dream come true, really. The Masters, I've watched that tournament since I was a boy,' said McDowell. 'Getting into next week is also very special. I'm excited about Sawgrass and I'm just excited the way the year is panning out in front of me.'
Woods never recovered from a poor third round where he drove out of bounds on the ninth hole and took a double bogey. He needed three birdies in his final six holes Sunday to shoot an even-par 72. Woods tied for 23rd at 1-under-par 287.
'It was a frustrating week,' said Woods, who won this title four years in a row from 2000-2003. 'I didn't really have it, didn't putt well, didn't hit the ball all that great and consequently, I wasn't in contention.'
Ernie Els, who came to Bay Hill after back-to-back wins on the European Tour, had a chance to become No. 1 in the world, but never got going. He made the cut on the number then went 69-70 over the final two rounds to be part of the group tied at minus-1.
Rankings aside, the tournament came down to Perry and Singh, two of the three players in the last group.
Both Perry and Singh birdied the 12th to maintain Perry's three-shot lead. The two parred both 13 and 14, then Singh began chipping away at Perry's advantage.
Perry missed the fairway and the green at 15, then ran his chip 6 feet past the hole. Singh knocked his approach to 15 feet and converted the birdie putt. Perry sank the clutch par save, but his lead dipped to two.
Singh drove in the right rough on the par-5 16th and was forced to lay up short with his second. Perry's iron shot went through the green and Singh wedged his approach inside a foot. Perry hit a terrible chip for his third, coming up 28 feet short. His birdie try stayed above ground and he made a 3-footer to save par. Singh tapped in for birdie and now the lead was only one.
At the par-3 17th, Singh hit a 4-iron on to the back fringe. Perry's tee ball landed 6 feet left of Singh's ball, but Perry ran his second 7 feet past the stick. Singh putted his birdie try and came up 4 feet short. Perry missed his par putt and Singh rolled his in to knot the two at 12 under with one hole to play.
From there, Perry played smartly and collected his first win since the 2003 Greater Milwaukee Open. That win was his third in four starts in an amazing run of summer golf and now the 44-year-old could be gearing up for another stint of great play.
'It's pretty cool,' said Perry. 'I've won at Hogan's Alley and I won at Mr. Nicklaus' place twice, now I've won at Arnie's place. That is a great feeling.'
Reigning U.S. Open champion Retief Goosen completed an improbable turnaround Sunday. He opened the tournament with a 78 and was tied for 97th. Goosen shot a 2-under 70 in the final round and finished alone in fourth at minus-5.
Corey Pavin collected his first top-5 finish in almost six years. He carded a 71 on Sunday and tied for fifth with Patrick Sheehan (67) and Aaron Baddeley (72). The group came in at 4-under-par 284.
Chad Campbell, who won this event in 2004, fired a 4-under 68 in the final round and tied for eighth place at minus-3. Ten other players joined Campbell at 3-under par, including Sergio Garcia, Darren Clarke, Fred Couples, Stewart Cink and Charles Howell III.