Argentina striker Sergio Aguero led from the front for City in a one-sided derby, volleying home acrobatically in the 16th minute and adding his second amid a glut of three goals in a five-minute span either side of halftime.
Yaya Toure and Samir Nasri were the other scorers in a signature victory that City really needed to kick-start the Manuel Pellegrini era. United, however, will be reeling after being embarrassed at times by its neighbour just when the team appeared to have clicked under new manager David Moyes.
"After winning, the most important thing was how we won," said Pellegrini, adding: "No one believes that 4-1 is possible before the game."
Wayne Rooney curled a free kick into the top corner in the 87th minute — becoming the highest scorer in Manchester derbies with 11 goals — but that will be little consolation to the England striker or United, which fell five points behind early pacesetters Arsenal and Tottenham after five matches. The visitors sorely missed Robin van Persie, who was sidelined with a groin strain, and have now made the worst start to a league season in nine years.
"I've made them aware of what I think," said Moyes, whose side claimed just one point from matches against Liverpool, Chelsea and City in a tough run of early-season fixtures.
City climbed to third and has now scored seven goals in two matches, on the back of a 3-0 win over Viktoria Plzen in the Champions League on Tuesday. The influence of Pellegrini may finally be kicking in.
It equaled City's biggest home win in the derby since a mauling by the same score line at the Etihad Stadium in 2004. And when the influential Nasri volleyed in the fourth goal after 50 minutes, memories came flooding back of the 6-1 beating City handed its neighbour at Old Trafford in 2011.
While that was a freakish result — City played against 10 men for almost the entire second half and scored three times in second-half stoppage time — this was fully deserved and even more conclusive.
The only consolation to the visitors was that they didn't concede any more.
"We found it difficult to contain them," Moyes said.
The absence of Van Persie was a major setback for United, as the Dutchman had linked up smoothly with a revitalized Rooney so far this season.
Rooney missed his strike partner and had a frustrating match, smashing a ball into the side of the prone Aguero after giving away an early free kick and then picking up a booking later in the first half for hacking at Vincent Kompany's legs. His late goal, great as it was, will largely be forgotten.
That exasperation had built up because of City's sheer dominance all over the pitch, particularly in midfield where Toure, Fernandinho and Nasri had total control. Center forward Alvaro Negredo lived up to his nickname of "The Beast", roughing up United's bedraggled backline and freeing space for Aguero to cause damage.
"It's really special to win because we sent a big statement to our rivals that Manchester City is going to be a force," Nasri said.
The France playmaker set up the first goal with a deft flick into the path of Aleksandr Kolarov, who fired over a cross that Aguero hooked in spectacularly.
It took sluggish United 42 minutes to have its first shot — Antonio Valencia dragging wide — and the visitors were further behind at the break when Negredo headed down Nasri's corner to the feet of Toure, who bundled the ball in from close range in injury time.
It was the best City had played all season, outstripping its display in the opening-weekend 4-0 win over Newcastle simply because of the quality of opposition they were facing and reminiscent of the displays they produced most weeks in their title-winning 2011-12 campaign.
And when Aguero volleyed in from inside the six-yard box after good work by Negredo, a repeat of the hiding City gave United two years ago looked on.
That didn't prove to be the case but United's players couldn't get off the pitch quicker at full time.