Azarenka blasted five aces while Williams was undone by 33 unforced errors and five double faults in the 88-minute championship game.
“Definitely not the game plan,” Williams said. “I think I probably was trying to hit through nerves.
“I was talking to Patrick [Mouratoglou, her coach] and he said he’s never seen me play that flat.”
Azarenka, a former world No 1 now ranked 15th after battling injuries, has been a thorn in the side of Williams over the years and she became the first player to deny the 34-year-old American a trophy on four occasions.
Heading into the contest Azarenka and Serena’s sister, Venus, were the only players to have beaten Williams three times in finals.
The 13th-seeded Azarenka also thwarted Williams’s bid to become the first three-time winner of the Indian Wells women’s title.
Azarenka got two early breaks at the beginning of both sets against Williams before closing out the match in front of a crowd of about 15,000 on the main stadium court when Williams sailed yet another forehand long.
Azarenka held serve in the first set to take a 2-0 lead that the erratic American couldn’t dent.
Williams even got caught standing still and admiring a shot at game point in the eighth game, allowing Azarenka to hit a slow forehand winner into the open court.
Out of sorts to start the second set, Williams quickly found herself in an 0-3 hole, smashing her racquet on the ground after dropping serve in the third game before tossing it backwards over her shoulder.
She briefly came to life to regain one break, but was unable to mount a charge.
Azarenka duly served out the match, adding a second title to the Indian Wells crown she captured in 2012 and earning US$1.02 million (Dh3.7m) for the victory.
“Feels good just to see the work that I have put in and it’s paying off,” Azarenka said. “Just everything that I have been through in the last years, it makes it more special.
“I was more aggressive. I started to use my serve the way I wanted to use my serve.
“Having that big goal in mind and going after it, that’s something that makes the momentum shift on the big stages.”
With the victory Azarenka will also return to the top 10 in the world for the first time since 2014, moving up to No 8.
Runner-up Williams collected $500,000. But she was unable to close the book on the darkest chapter in her tennis career which took place when she beat Kim Clijsters in the 2001 Indian Wells final.
Last year’s semi-final injury withdrawal cut short Williams’s first Indian Wells campaign since the Clijsters’s match, when spectators booed her during the final and jeered her sister, Venus, and father Richard Williams after the pair arrived to watch the match. Richard Williams said he heard racial comments.
That sparked a lengthy boycott by both Williams sisters with Serena returning in 2015 and Venus making her long-awaited return this year but losing to a qualifier in her opening match.
“Obviously the last time I was there was probably the worst moment of my whole career. Not probably. Sure,” Williams said.
“To be back out there, which I never thought I would be, you know, was really different and special.”
Williams also had to deal with sexist comments made to reporters before the final from the chief executive of the tournament, Raymond Moore, who said female players ride on the coattails of men, and commented on the physical attractiveness of a couple of the tour’s best young athletes.
“You know, it was just, I was overwhelmed with, I think, emotions and nerves. Obviously I think everything kind of played a part,” Williams said.
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