Cormier, a two-time Olympic wrestler who came into the Strikeforce tournament as an alternate, used his speed, power and takedowns to get the better of the bigger Barnett, a former UFC heavyweight champion.
The judges scored it 49-46, 50-45, 50-45 for the 33-year-old Cormier, who sank to his knees and put his head on the canvas after the decision was announced.
"I've lost a lot of people in my life," said an emotional Cormier, whose daughter died in a 2003 car accident. "And this is for all of them ... this means the world to me
Earlier at the HP Pavilion, lightweight champion Gilbert (El Nino) Melendez won a split (48-47, 47-48, 48-47) decision over local favourite Josh Thomson in their third meeting.
Cormier (10-0) showed his power early on in the first round, getting the bigger Barnett's attention. The 33-year-old Cormier came forward at Barnett but was hurt with a right to the head late in the round, suffering a cut around the left eye.
The five foot-11, 238-pound Cormier was quicker to the punch again in the second, took Barnett down midway through the round and kept him there. Cormier cut Barnett with an elbow and the round ended with Barnett's face bloody.
Cormier slammed the six-foot-three 248-pound Barnett to the canvas in the third round, grabbing him by one leg and then picking him up before hurling him down. He could not take advantage, however, and Barnett got back up. Cormier landed a head kick, stunning Barnett at the fence and then punishing him with knees.
Barnett's face was busted up by the fourth and he was taken down again, looking for a leg lock before Cormier wiggled free. A bloody Barnett ended up underneath Cormier again.
A game Barnett (31-6) kept coming in the fifth but had no answers.
"There was no way I was going to stop fighting. I was going to make him earn this," said Barnett, who said he broke his hand in the first round.
"Today Daniel was better."
Barnett had won eight straight since a December 2006 loss in Pride to Antonio Rodrigo Nogueira.
Cormier, a former Olympic wrestler who finished fourth in Athens, entered the tournament as an injury replacement for Alistair Overeem. He defeated Antonio (Bigfoot) Silva in the semifinals.
The 34-year-old Barnett, a former UFC heavyweight champion, beat Brett Rogers and Sergei Kharitonov in his first two Grand Prix fights.
Many had expected Russian Fedor Emelianenko to make it to the finals but he was upset by Silva in the first round of the bracket.
Melendez (21-2) came into the 155-pound title fight as a 6-1 favourite by some bookies but had his hands full as Thomson came on strong in the final rounds.
"I thought I won most of the rounds," said Melendez, adding: "it wasn't my best performance."
The decision earned some boos, which Thomson said were not warranted.
"Who wants to see a fourth fight?" asked Thomson.
Melendez lost his title to Thomson in June 2008 but, after winning the interim crown with Thomson (19-5 with one no contest) sidelined by injury, won it back a rematch in December 2009. Both fights went to decision.
Melendez, 30, came into Saturday's rubber match having won all three of his bouts since. Thomson, 33, had won three of four.
Both men scored takedowns in a close first round but Melendez jumped right back up when tripped. He later took Thomson down and stacked him at the fence.
Thomson, changing stances, looked to score with counter-punches in the second. He took an accidental eye poke in the round and was dumped briefly on the ground with about a minute left.
Melendez had a busy start to the third. But Thomson stuffed a takedown and drove the champion back with punches. Thomson scored with another trip takedown, only to see Melendez roll backwards to his feet.
Melendez's face was starting to show damage but the champion was the one scoring with strikes when they got close. Thomson claimed another eye poke but referee Dan Stell disagreed, telling him to keep going.
Thomson landed a powerful right in the fourth, cutting the champion by the eye, but otherwise it was more of the same. Melendez was busier on his feet and scored a takedown. The round turned when Thomson tripped Melendez and took his back, but couldn't lock up the rear naked choke.
Melendez got an early takedown in the fifth but couldn't keep him down. Thomson, gaining momentum scored with strikes and Melendez got a talking to from the referee after another eye poke. The challenger scored another trip takedown in the final minute and finished the fight on top of Thomson.
Both men raised their arms in victory as the final round ended.
Melendez, extending his win streak to seven bouts, said fighting Thomson was a "lose-lose" proposition.
"It's not as motivating. I have everything to lose, he has everything to gain."
Light-heavyweight Rafael (Feijao) Cavalcante made short work of local favourite Mike Kyle, forcing him to tap to a guillotine choke after just 33 seconds.
Feijao (12-3) stunned Kyle with a knee just seconds into the fight and then punished him with strikes. When Kyle fought his way up to his feet, Feijao applied a standing guillotine choke.
Kyle (19-9-1 with one no contest) dropped to the ground but could not shake Feijao loose and had to tap.
"If Strikeforce gives me a chance, I want the belt," said the Brazilian.
An underdog Kyle knocked out Feijao when they met in 2009. Feijao rebounded to win the Strikeforce light-heavyweight championship in 2010 but lost it to Damn Henderson in his first title defence in March 2011
Welterweight Chris (The Kiss) Spang (5-1) used a string of knees to stop Nah-Shon Burrell (8-2) 1:35 into the first round.
Brazilian newcomer Guto Inocente won a unanimous decision over light-heavyweight Virgil (Rezdog) Zwicker.Suggest a correction