The British number one, who became the first British woman to win this title since Sue Barker in 1977, will rise to number 14 in the world after the 7-5 5-7 6-2 victory in two hours, 18 minutes.
Konta looked to be coasting to victory when leading by a set and 4-1 in the second but Williams won six of the next seven games to haul herself back into the match and level it at one set all.
However, the 25-year-old regained her composure and after getting herself into a position of authority with a double break in the deciding set she did not make the same mistake again and after saving two match points, Williams' return went into the net to hand Konta victory.
Venus Williams books quarter-final spot in Stanford
Konta's service game was key to the win and she was regularly sending down serves in excess of 100 mph and hit 12 aces to just three from Williams.
"It's quite an incredibly humbling experience," Konta, who also beat Williams at the Australian Open, told a press conference after the match.
"It's a validation of all the hard work you've already put in and a motivator on the things you want to keep improving on, and the lengths you might go to in order to become that much better at your discipline.
"I've played her twice before and knew I'd be playing a magnitude of experience. Venus Williams doesn't need an introduction, and I knew going into that I'd need to stay focused on myself and to be really grateful for the experience and try to learn from her within the match.
"I wanted to leave it all out there, but also absorb everything that I could possibly reinvest in my career moving forward."
Konta paid tribute to the resilience and fight of the former world number one, who was looking for her 50th career title.
Jo Konta beat Venus Williams in Stanford.
Image credit: Eurosport
"Quite honestly, you'd expect nothing less from a champion," Konta said. "They don't give away any match, much less a final. It was her 80th, so you could only imagine the number of different situations that she's already been in.
"It was about keeping things in perspective, and understanding there'd be ebbs and flows in the match.
"Every single point was a battle, and I tried to win as many battles as possible.
"The simpler you keep things, the more clarity you have, and the less dumb you play!"
Wimbledon semi-finalist Williams admitted she was not at her best in the final but it was tough to keep up with Konta, who turned in one of her best performances of a remarkable season.
"Credit to her for playing great tennis; she played so well and all of her balls were landing today," Williams said. "It wasn't my best day, but I tried to stay in there and fight, and that helped me get an opportunity to win the match.
"Just because it's 4-1 doesn't mean the match is over; it's not a favourable scoreline if you happen to be down, but it's not over.
"She played at such a high level today. She saved her best tennis for the final, which is what you want to do.
"She plays really well against me, so maybe she comes out and doesn't feel any pressure and just swings for it. I tried to stay in there and fight. What can I say but give her credit."
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