After suggesting he was in the form to challenge compatriot Patrick Makau's 2011 time of 2 hours, 3 minutes, 38 seconds set in Berlin, the 31-year-old Kipsang beat the record by 15 seconds to set a new world best of 2:03:23.
"Looking at my marathon progress and career so far, I still think I have the potential to run faster. Anything under 2:03:23 would do," said Kipsang, who was just four seconds short of Makau's time in Frankfurt in 2011.
It was the eighth world record in Berlin in 15 years, strengthening its reputation as the world's fastest course.
Kipsang earned 40,000 euros ($54,000) in prize money plus another 50,000 ($68,000) for breaking the record.
Eliud Kipchoge of Kenya was second in 2:04:05, improving his personal best by a minute and a half in his second marathon, while Kenya's Geoffrey Kipsang — no relation to Wilson — was third in 2:06:26.
"I felt strong, even though I was running much faster than in my debut in spring," Kipchoge said. "I've now run 2.04, so I think one day I could train to run the world record."
The three made a fast start behind Kenyan pacemakers Philemon Rono, Philemon Yator and Edwin Kiptoo, a training partner of Wilson Kipsang. They reached the 5km mark in 14:33, 10km in 29:16 and halfway in 61:32, faster than Makau's pace two years ago. Kipsang waited until the 35km mark to make his break, with Kipchoge fighting back briefly before the eventual winner pulled away again.
"This is a dream come true," Kipsang said. "Ten years ago, I watched (Kenya's) Paul Tergat break the world record in Berlin (in 2.04:55), and now I have achieved the dream. I felt strong, so I attacked at 35k, because the pace had become a little too slow."
Makau didn't run due to an inflammation in his left knee while defending champ Geoffrey Mutai of Kenya is concentrating on the New York City Marathon in November.
Pre-race favourite Florence Kiplagat of Kenya won the women's race in 2:21:13, a minute and a half slower than her personal best, with compatriot Sharon Cherop second in 2:22:28.
"I felt strong in the first half of the race, but then I started getting problems with my right foot, I had a blister which forced me to slow down," said Kiplagat, who won in 2011 with her personal best. "I found the weather conditions harder than 2 years ago here, but I'm still very happy."
Germany's Irina Mikitenko finished third and set a new over-40 world-best of 2:24:54, almost a minute quicker than the previous mark set by Ludmilla Petrova in New York in 2008.
"I'm already 41 but that doesn't mean anything," said Mikitenko. "I feel like I'm 20 with 20 years' experience."
Conditions were cool, but dry and sunny, with a light breeze that grew stronger throughout the morning.
The race was started by four-time winner Haile Gebrselassie of Ethiopia, who twice set the world record in Berlin.
All eight runners who previously set world records in Berlin were on hand to wave 41,120 runners from 119 nations off at the start.
A 71-year-old man died after collapsing during the inline skating competition on Saturday.
For the first time, a fence was erected around the Tiergarten city park amid increased security in the wake of the Boston Marathon bombing in April, when three people died and about 260 were injured.