
Thompson, 24, got off to a flying start and quickly surged to the front to cross in 10.71sec, punching the air and embracing Fraser-Pryce at the finish.
Tori Bowie of the United States took silver with 10.83sec while Fraser-Pryce claimed bronze in 10.86.
The win ended 29-year-old Fraser-Pryce's hopes of a hat-trick of 100m titles after her gold medals in the 2008 and 2012 Olympic Games.
Instead it was Thompson who confirmed herself as the next star of Jamaican women's sprinting with an imperious display at the Olympic Stadium.
Exploding out of the blocks, Thompson quickly edged clear of the field and the powerfully built runner never looked like relinquishing her grip on the contest.
Marie-Josee Ta Lou finished just outside the medals in fourth while flying Dutchwoman Dafne Schippers, widely seen as a strong favourite for the 200m, was fifth in 10.90sec.
Two other women -- Michelle-Lee Ahye of Trinidad and Tobago and the USA's English Gardner -- also dipped under 11 seconds with times of 10.92sec and 10.94 respectively.
It was the first time in track and field history that seven women have gone under 11 seconds in a single race.