Higgins had looked in complete control as he lead 10-4, but Selby showed the fight of a defending champion when winning nine out of the next 10 frames to lead 13-11.
Higgins fought back again but Selby held his nerve to see out the match 18-15 to become only the fourth player after Steve Davis, Stephen Hendry and Ronnie O'Sullivan to claim back-to-back titles in the modern era.
"I can't believe it, I am still pinching myself now," said Selby. "From 10-4 to get to 10-7 yesterday, I was over the moon as I had nothing left. He outplayed me yesterday. Today I came back fresh and was a lot better.
"When I was 10-4 down I was missing everything and had nothing left. I said 'pull something together'. If you lose, you want to at least go down fighting.
"To have three world titles is unbelievable and to be one of only four players to defend it is something I could only dream of."