The 29-year-old Muhammad, the 2016 Olympic champion, crossed the finish line in 52.16 seconds, 0.04 seconds faster than the previous world record she had set in July.
Muhammad was only slightly ahead of silver medallist McLaughlin over the first 100m of the race, but her lead grew as they came through the second bend.
McLaughlin, 20, closed in on her team mate but couldn't quite catch up as she finished second in 52.23 seconds.
The two Americans completely dominated the race, opening up a large gap on the rest of the field.
Rushell Clayton of Jamaica took the bronze with a personal best time of 53.74 seconds. (