The victory gave the 22-year-old Nishikori his second career ATP tour title and first in more than four years.
Nishikori, ranked No. 17, put on a fine all-around display before a packed house at Ariake Colosseum to record the triumph against the sixth-seeded Raonic, who's 21 and hails from Thornhill, Ont.
The Japanese lost just two games on serve against Raonic, who lacked the spark he showed on Saturday when he ousted top-seeded Andy Murray in the semifinals. Raonic was undone by unforced errors in the loss.
Nishikori, a native of Shimane Prefecture in southern Japan, is the first Japanese player to win the tournament in its 41-year history.
"To have won this tournament in Japan is a very happy occasion for me," Nishikori said. "I made an effort to approach today's match as the challenger."
Nishikori broke Raonic in the second game of the opening set, marking only the second time in 44 games in the tournament that Raonic had dropped a game on serve. Nishikori then held serve to go up 3-0.
"He was able to read my serve well, which usually doesn't happen," said Raonic.
Raonic responded by winning three straight games to level, including a break in the fifth game. The set then remained on serve until the tiebreaker.
Nishikori hit sharp forehands from the baseline throughout the set and also benefited from several mistakes by Raonic.
Nishikori squandered two set points while leading 6-5, as Raonic held on to force the tiebreaker.
After winning the first two points of the tiebreaker, Raonic came to the net and made it 3-0 with a volley. Nishikori replied with three straight points to even the score and made it seven of nine to take the tiebreaker.
Raonic was having trouble with his backhand returns, and sent one long to give Nishikori the set 7-5.
"I wish I could have started better," said Raonic. "I let him get away to the good start. I didn't take enough opportunities and didn't go for my shots like I did in the last two matches."
Raonic had two break points in the second game of the second set, but could not capitalize as Nishikori held to make it 1-1.
The set went on serve until Raonic broke to move ahead 5-3 and took the set 6-3 when Nishikori sent a return of serve into the net.
Raonic found his rhythm in the second set and began to serve better, notching eight aces, just as Nishikori appeared to tire.
Nishikori broke Raonic go to up 2-0 in the final set with a nice backhand down the line. With his confidence growing, Nishikori began coming to the net more frequently.
"In the third set I started to feel a bit heavy and was not moving well," said Raonic. "He kept going for his shots even more. I was a bit late on everything.
After holding serve to go up 3-0, Nishikori rifled a two-hand backhand down the line to break for 4-0 and went on to close it out 6-0 with one more break.
"The third set was not so different than the other two, but he was getting behind the ball and hitting deep," said Raonic. "He was preventing me from going forward and putting pressure on him."
Raonic had won two tournaments this year, triumphing in Chennai, India, and San Jose, California.
En route to the Japan Open final, Raonic earned his 40th singles victory of 2012 and also eclipsed the US$1 million mark in prize money for the season.
And despite his loss, he remains in the chase for one of the last four spots in next month's prestigious eight-man World Tour Finals in London.
Raonic will continue his push towards London next week at the Shanghai Rolex Masters. He is seeded no. 12 and will play a qualifier in the opening round.
- with files from The Canadian Press.