After the 0-0 first-leg tie in Montevideo, it was Santos who found the net twice to earn South America's top club honour
Neymar, who may have played his last game for the club before a transfer to Europe, found the net with a well-placed shot two minutes into the second half, then Danilo curled the ball into the back post to leave former player and legendary figure Pele celebrating the triumph from the stands.
A late own goal from Durval made no difference to the final outcome, as the home side held on for the victory in South America's premier club tournament.
It was a fantastic display by Santos, who had trouble breaking through the Penarol defence in the early going, just as they had in Montevideo a week ago.
The hosts the better side, keeping the ball while looking to play down the wings, but the Manya defence held tough, keeping the mighty Brazilians at bay. Santos' best chance of the opening exchanges came when Elano tested Sebastian Sosa from deep, firing a shot that was saved at the post.
At the half-hour mark, Alejandro Gonzalez took down Neymar after a pass from Ganso sent him through. The defender was given a yellow card, and Elano went for the top corner with the free kick, but it was saved well by Sosa, who knocked the ball wide after positioning himself expertly.
But it took just a minute of the second half for the breakthrough to arrive, and it was Neymar who looked to end the near 50-year drought with a neat finish.
Arouco dismantled the Penarol defence, dancing through the opposition half before finding the 19-year-old at the side of the box, and the magician slotted the ball past Sosa, who may feel he could have done more to repel the strike.
The fans inside the stadium began to cry, jump, laugh and cheer as the title was within their grasp, and they could sense the crown was theirs when Danilo doubled the lead with a brilliant solo display from outside the box.
The defender headed towards the edge of the area, and cut inside before swerving his strike inside the far post, making Pele jump for joy.
Penarol pulled one back 11 minutes from time when Durval knocked the ball into his own net off a cross, to keep the tie interesting in the closing moments.
In the dying seconds, Neymar hit the post when given the chance to seal the win, but the fans were left nervous as one more goal would have sent the game into extra time.
But Santos held on to lift the trophy, and the victory caps off a stellar run in the tournament, who were led by Neymar and Elano and aided by the return of Ganso, who passed the ball well throughout the contest.
For Penarol their sixth title, which would tie them in second in terms of total victories in the history of the competition, will have to wait. But for Santos, the celebration begins.