The 23 year-old worlds No 1 has crushed Poland’s Sylwia Bogacka by 0.7 points in a nerve-racking final at the Royal Artillery Barracks in Greenwich, London.
Bogacka was leading until the eighth attempt of the 10-shot final when a wayward effort handed Yi first place.
Great Britain's Jennifer McIntosh was knocked out in the qualifying round.
Yi, the world number one, smiled in joy as she honoured what is sure to be the first of many gold medals for China at the London Games.
"It's very exciting," said Yi. "I have been up since five this morning. There was a lot of pressure on me. I'm very grateful to China and to my mother and father, who I love very much."
Yi closed the match with near 2000 spectators cheering her up including International Olympic Committee (IOC) President Jacques Rogge, who clapped from his seat when Yi was declared the winner.
Competitions in badminton, archery, table tennis and judo have also started early on a bright sunny morning in London.