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Playing in her first major semifinal, Pegula was made to look like a novice by Muchova in a disastrous opening set, but somehow turned the tables on the unseeded Czech.
Pegula looked in cruise control in the second set as she broke Swiatek again in the third game.
The sixth-seeded American Pegula, who struggled with injuries earlier in the year, produced her best form of the tournament so far.
The Pole broke Pegula five times and won the final 11 games in a 59-minute slaughter to capture her first WTA Finals title in a match delayed by a day due to rain
The second semifinal between Swiatek and top seed Sabalenka was cancelled for the night due to rain.
Pegula, who came into the contest with a dismal 1-4 record against the hard-hitting Sabalenka, managed to absorb her powerful serve to extend rallies and thwart the Belarusian's comeback attempts.
Pegula won 10 of the last 12 games to get past an error-prone Rybakina and notch up a 7-5, 6-2 win.
Results 1-7