A terrific third shot at the 18th left Schauffele with a short putt for victory, after he found deep rough off the tee and could not go for the green in regulation.
He held his nerve to protect his one-shot advantage, finishing on 18 under par as Sabbatini took a spirited silver for Slovakia.
The battle for the bronze at Kasumigaseki Country Club went down to a seven-man play-off, with Chinese Taipei's world number 208 CT Pan landing the third-place medal and Hideki Matsuyama, Collin Morikawa and Rory McIlroy among those left disappointed.
By the time they reached the fourth extra hole it was down to a two-man battle between Open champion Morikawa and Pan, who had both posted closing 63s. Morikawa found sand with his second shot, the ball becoming plugged, and although he just about got it on the green, the putt he left went astray, leaving Pan to roll in an eight-footer for the medal.
Schauffele and Matsuyama were in Sunday's final group to start, just as they were at The Masters in April when Japan's newest golf star became his country's first men's major champion.
This time it was Schauffele's time to triumph, with the 27-year-old Las Vegas resident, who was born in San Diego, just about doing enough as a four-under 67 sealed the title.
And he could relax at last, the tension of the past hour all forgotten.
THIS ONE'S FOR DAD
Schauffele, whose mother was raised in Japan, was asked if it was his biggest career win and replied: "I'd like to say so, yeah."
His father, Stefan, has been with him in a coaching capacity this week, and Schauffele said: "I really wanted to win for my dad. I am sure he is crying somewhere right now. I kind of wanted this one more than any other.
"You are trying to represent your country to the best of your ability and then you add family stuff on top of that and I'm probably going to have a nice call with my grandparents tonight. I am sure they are back home, everyone is back home watching. I was feeling the love from San Diego and Las Vegas this whole time.
"I'm a little speechless right now, quite honestly."
Schauffele almost lost his ball when he drove into trees on the right side of the fairway on the par-five 14th, hitting a provisional ball in case there was no sign of the first.
That ball was soon located though, with Schauffele taking a penalty to bring it into a just-about playable position.
Matsuyama found the green in two but Schauffele was still short after four and was grateful to make six. Matsuyama went close with his eagle putt but had to settle for birdie, moving one shot behind Schauffele who slipped back to join Sabbatini on 17 under.
"It got a little dicey there," Schauffele later said. "When you are trying to win you need some things to go your way. I took a pretty big risk trying a hack-it-through-a-bush type shot and it missed my gap. I literally did the Matrix through these trees and it could have easily hit a tree and gone out. So, today was definitely my day."
HANGING TOUGH, DESPITE THE ROUGH
It was a hectic leaderboard all day long. Sabbatini had come from way back in the field thanks to his 10-under round and was waiting in the clubhouse to see what reward that would bring him.
Home favourite Matsuyama bogeyed the next to fall two back but gave himself a chance of birdie at the short next hole with a tee shot to around 10 feet, only to miss by a whisker.
Ireland's McIlroy was then two inches away from a birdie at the last that would have taken him to 16 under and secured bronze, yet he went into the play-off instead, as did Matsuyama.
Schauffele made birdie at 17 to edge in front on his own, and after the wretched tee shot at the last threatened to undo his gold medal mission, the American saved his best for last.
The third shot was almost right at the pin, finishing four feet away. Schauffele made no mistake, succeeding Justin Rose as Olympic champion, with the sport having returned to the Games programme in 2016 for the first time in 112 years.
The play-off also featured Chile's Mito Pereira, Great Britain's Paul Casey and Colombia's Sebastian Munoz, with Pan the unlikely figure to emerge with the bronze.
