The world number one prevailed 7-6 4-6 7-6 2-6 6-2 after three hours and 45 minutes of breathtaking tennis.
Federer looked to be in control with a two sets to one lead, but the tireless Nadal broke twice to force a decider.
After saving four break points, Federer powered a superb forehand down the line to lead 4-2 before sealing an epic win.
It was no more than they deserved, Federer winning by far the toughest match of his five-year reign.
"Each one is special but to play a champion like Rafa, it means a lot and equalling Bjorn's record as well..." a tearful Federer told BBC Sport.
"He's a fantastic player and he's going to be around so much longer so I'm happy with every one I get before he takes them all!
"It was such a close match. I told him at the net that he deserved it as well. I'm the lucky one today."
A superb final - one of the best in history - ensured a tournament which was marred by appalling weather and the subsequent scheduling nightmares ended on a dizzying high.
Federer, in his ninth Grand Slam final in a row and 13th overall, made a superb start, hitting seven winners before Nadal had managed one as he surged into a 3-0 lead.
The Spaniard settled, though, and at 1-3 unleashed two magnificent passing shots from well behind the baseline to rock Federer and broke back.
But a first set of dazzling quality was decided by the scrappiest of tiebreaks, Federer winning it 9-7.
The second set looked to be heading for another tiebreak until it turned dramatically in game 10.
Federer hit a first serve which both players appeared to think was wide. Nadal scrambled back the return but an off-balance Federer made a mess of his reply.
That gifted Nadal two set points and the Spaniard whipped a backhand down the line to level the match, punching the air in celebration.
The quality somehow hit a new peak in the third set, scintillating rallies and dazzling winners becoming the norm.
At 5-4 down, Federer faced deuce but produced two spectacular winners, an angled backhand smash and a jaw-dropping volley off a dipping Nadal forehand, to come through before stepping on the power to take the tiebreak 7-3.
With a two sets to one lead, Federer took a toilet break and when he returned, Nadal was ready for an ambush, earning his first break point since the second set and taking it with a magnificent forehand crosscourt return which left a net-bound Federer floundering.
More drama followed when at 2-0 and 30-30 on Federer's serve, Nadal challenged a baseline call, with Hawkeye deciding his backhand had clipped the back of the line.
A clearly rattled Federer, an outspoken critic of Hawkeye, dumped a routine forehand into the net to go a double-break down and let rip at the umpire during the changeover, blaming the electronic system for "killing" him.
Nadal, despite having treatment on a knee injury at 4-1, took the set comfortably to force Federer into his first five-set match at Wimbledon since he beat Pete Sampras in 2001.
And the Spaniard may look back with regret at the chances he had in the decider.
At 1-1 and 2-2, he engineered a 15-40 lead but Federer's serve proved impregnable and it was no surprise when Nadal himself succumbed to the pressure.
Federer delivered a rare show of emotion when his forehand landed on the line, looking up to his support camp and roaring with delight.