After failing to win a game in the opening set, and trailing in both the second and third, the Russian fought back strongly to overcome the world number two in one hour 43 minutes.
Third seed Davydenko, who defeated the world's top player Roger Federer in the semi-final, produced 52 winners against the second-seeded Spaniard's 37 to claim the trophy.
The world number six thought he had no chance after losing the first set without winning a game but a battling performance improved his head-to-head record against Nadal to 5-4.
"After losing the first set 6-0, I thought I had no chance of winning," said the Russian. "In the beginning, he was on top and I had to fight for every point. However, as the match wore on, Rafa lost his concentration and made too many mistakes.
"Really, I wasn't sure of winning till I had three match points. If I can make such a remarkable turnaround after failing completely in the first set that definitely means my confidence is high. I'm happy I could stay focussed at crucial stages."
UNBEATEN RUN
The victory takes Davydenko's unbeaten run to nine matches after he won the ATP World Tour Finals in London in November.
Nadal tried to look for positives as he prepares for the defence of his Australian Open title later this month.
"I'm happy with the way I performed. I played unbelievable tennis in the first set. That just shows I'm back to my best, maybe, like how I played in 2008. It's a huge morale booster," he said.
"After losing the tiebreaker (10-8), I don't know what went wrong. I lost to one of the best players in the world," Nadal said, adding it was too early to comment on his title prospects at the Australian Open.
Davydenko said beating Nadal and Federer at the Australian Open would be a completely different challenge.
"I can beat them in three sets but in five sets, I don't know. I'm quite used to calling the shots in three sets.
"The climate in Doha suits me better than that in Australia. I'm better off playing in Doha's 18 degrees than the 30 at Melbourne Park, so it will be very challenging," he added.
