China's Feng Bin took silver with 67.51, while former double Olympic and world champion Sandra Elkasevic of Croatia also threw 67.51 but had to settle for bronze because Feng's second-best effort topped the Croatian's.
Having locked up gold before her final throw, the American who is unbeaten this season, stepped into the circle to huge applause and after hurling the discus 69.21 sprinted to her coach Zebulon Sion and leapt into his arms.
"I am on cloud nine," she said. "Until it was all done I didn't let myself believe it was going to be true. To walk away as champion - I can't believe it."
Allman fouled badly on her first throw, saying she felt the nerves.
"Knowing this is the Olympic final and everything we put in for years, not just one year, is going to come down tonight. It took a minute to find my groove and my coach was good about helping me get settled and reminding me what to think about."
Allman, who became the fourth woman to win two Olympic gold medals in discus, had served notice she was the one to beat when her throw in the qualifying round topped the field by nearly four metres.
Allman was a dancer growing up before switching to discus in high school, finding she was a natural at spinning in the throwing circle.
France's Melina Robert-Michon earned some of the loudest cheers of the night. The 45-year-old, who won silver at the 2016 Olympics, finished 12th with a throw of 57.03 metres in a remarkable seventh Olympic appearance. Her seven Olympics matched Jamaican sprinter Merlene Ottey's record number of appearances for a woman in track and field.
Robert-Michon, who was a flag bearer for France at the opening ceremony, has no immediate plans to retire, hoping to compete in next year's world championships in Tokyo.
The event was missing Yaime Perez, who boasts the best throw this season of 73.09 - more than a metre better than Allman's best. Perez is ineligible after defecting from Cuba to the U.S. two years ago.
