The double French Open champion, who has not lost on the slow surface since a defeat to Russian Igor Andreev in April 2005, became the second player to win three straight titles in the principality.
Only Romania's Ilie Nastase had achieved the feat before him, from 1971 to 1973.
Nadal, who thrashed all his opponents en route to Sunday's final, has already emerged as a hot favourite to retain his French Open crown.
"Congratulations to Rafa. I am very happy for him. What he has achieved is fantastic," Federer said in a courtside interview.
"I will try again to beat him in Rome, Hamburg and here in Monte Carlo next year."
Nadal said: "I have to say it is an honour to be here up against him (Federer) and to win for the third time."
SLOPPY FOREHAND
The Majorcan took advantage of his opponent's sloppy forehand to improve his record against Federer to 7-3. The Swiss has never beaten him on clay in five meetings.
Federer had won his two previous matches against the world number two, beating him for his fourth consecutive Wimbledon crown and in the semi-final of last year's Masters Cup.
The left-handed Spaniard defeated Federer in last year's final before clinching his second French Open title with victory in Paris against the Swiss.
Federer, who was in a class of his own against claycourt specialists David Ferrer and Juan Carlos Ferrero in the previous rounds, never seemed in a position to bother Nadal.
Nadal broke decisively on his second chance when Federer sent a forehand long in the ninth game after wasting three opportunities to take the Spaniard's serve.
The double French Open champion clinched the set with a crosscourt forehand winner in 47 minutes.
The Swiss, who made 13 forehand unforced errors in the first set, dropped his serve in the third game of the second as Nadal managed an impressive passing shot.
Federer saved two match points with forehand winners but bowed out on the third, giving Nadal his 19th career title when he sent a backhand long.
