Ashton held her nerve in the dying moments, surviving 11 match darts from Sherrock across the final two legs.
After letting early leads slip, Ashton watched as Sherrock took control, only for the Milton Keynes star's finishing to abandon her at the crucial moment.
Sherrock, winner of the inaugural event in 2022, looked set for a second crown but Ashton pounced to etch her name into the tournament's history with a 6-5 win.
Ashton's route to glory was anything but smooth. She beat Robyn Byrne 4-2 in the quarters, then ended Beau Greaves's hopes of a third straight title with a 5-3 win, highlighted by a 140 checkout.
"I'm so, so happy," Ashton told the PDC.
"I have to say a huge thank you to the crowd who supported me and got me through that today. I'm lost for words.
"My form has been a bit up and down, but today it all clicked. I never gave up, and I've finally done it!
"Me and Fallon both just play our own games. We push each other on, and I think it was a great advert for ladies' darts."
Sherrock weathered Ashton's flying start and surged 3-2 ahead after a 13-darter, a 14-darter, and an 86 finish.
Ashton, who took out 85 and 68 earlier, reclaimed the lead with a 72 on tops for 4-3. Sherrock then moved within touching distance of the title, only to squander eight match darts in the penultimate leg and three more in the decider.
Ashton hit a timely maximum and took out 64 in two darts to seal the championship crown.
Sherrock, runner-up for a second year running, was left to reflect on another near miss.
"I'm quite proud of myself," Sherrock said. "I think I've played better here than I have in the last few months, so whatever I'm doing is working.
"I feel like every time me and Lisa play, we bring the best out of each other, and she played really well today."
Sherrock opened with a 4-3 win over Gemma Hayter, holding off a spirited comeback from the debutant, then edged Dutch star Noa-Lynn van Leuven in a nine-leg scrap after van Leuven forced a decider with a 116 checkout.
Van Leuven had earlier swept aside Lorraine Winstanley 4-0 for her first win at this event.
Favourite Beau Greaves extended her unbeaten run at the Women's World Matchplay to seven with a 4-1 win over Kirsi Viinikainen, averaging above 96. Still, a series of big missed chances proved costly in the semi-finals as Ashton knocked her out despite Greaves landing four 180s.
2025 Betfred Women's World Matchplay
Quarter-finals
Beau Greaves 4-1 Kirsi Viinikainen
Lisa Ashton 4-2 Robyn Byrne
Noa-Lynn van Leuven 4-0 Lorraine Winstanley
Fallon Sherrock 4-3 Gemma Hayter
Semi-finals
Lisa Ashton 5-3 Beau Greaves
Fallon Sherrock 5-4 Noa-Lynn van Leuven
Final
Lisa Ashton 6-5 Fallon Sherrock