The Briton, who went into the final round trailing Meg Mallon by five strokes with another eight golfers between them, compiled seven birdies and one bogey to win by two strokes with an 11-under-par 277.
Karrie Webb of Australia, who led after the first two rounds and trailed Mallon by one stroke after three, shot an even-par 72 to finish tied for second with Nancy Lopez on 279.
Mallon's putter deserted her on the front nine and she never recovered, finishing with a two-over 74 that left her alone in fourth, three strokes behind Davies.
"It was just one of those days," said Davies, 32, after winning the fourth major of her career. "Winning a major is fabulous and to win this tournament is a dream come true for me."
Davies won her second LPGA Championship earlier this year to go with her 1994 crown and the 1987 US Open title. The year's other major winners on the LPGA tour were Patty Sheehan, who won the Dinah Shore, and Sweden's Annika Sorenstam, who won the 1996 US Open.
Sorenstam was also in the hunt for a second major. She began the day one stroke up on Davies but failed to make up any ground on the leaders with a final-round one-over 73 that left her six strokes adrift.
The long-hitting Davies suffered her lone setback on the 6,324-yard Edmonton Country Club course with a bogey on the par-three 11th hole. Otherwise, she was nearly flawless. She holed out from the bunker for birdie on the third hole and was off and running. On the toughest hole of the course - the 17th - she hit a six-iron off the tee, put a wedge to 10 feet, and made birdie.Reuse content