The 22-year-old had been the favourite before the race and led from the start, to finish in 55.48 seconds, breaking the previous world record which she had set a year ago.
“It was absolutely amazing,” Sjöström said after the race. “That I could handle the pressure, and in addition beat the world record. I didn’t see at first that it was a world record. I just saw that I won. It was awesome to do my fastest race in an Olympic final.”
It was Sweden’s first ever Olympic gold medal in women’s swimming and Sjöström’s first, of any colour, in what is her third Games.
She has an opportunity to win more in the coming days as she competes again in the freestyle over three different distances.
Her victory on Sunday in Brazil, capped a good day for Sweden after cyclist Emma Johansson had earlier taken silver in the women’s road race.
That was Johansson’s second Olympic silver, having previously finished second at the Beijing Games in 2008.
Johansson said it was “absolutely amazing” to take second place in the race, which had been marred by a horrendous crash which left Dutch rider Annemiek van Vleuten with three fractures on her lower back.
Sweden's men's and women's football teams were also in action over the weekend, with both losing.
The women's team were thrashed 5-1 by hosts Brazil, while the men were beaten 1-0 by Nigeria.
Head of Sarah Sjöström's swim club: I had goosebumps3:00 min 3:00 min
Swimmer Therese Alshammar 'honoured' to carry Swedish flag in Rio0:42 min 0:42 min
High hopes for Swedish swimmer Sjöström in Rio4:33 min 4:33 min