Bystrom made a solo move in the final kilometres and managed to hold off the peloton by seven seconds to claim the rainbow jersey.
Ewan out-sprinted Bystrom's team-mate Kristoffer Skjerping for the silver medal, after the Australian team had controlled the peloton for the majority of the race.
"I saved my legs for the final and I made the right move at the right time," said 22-year-old Bystrom who will race for Katusha next season.
"I put all my power into the last climb, and then I went full gas and no one could follow me. I went super fast on the downhill, I'd felt really good all day, and at the end I just had to keep going."
Ewan, who had to settle for second in what will be his last race as an Under 23, said he was disappointed, but acknowledged it was never going to be easy for him on this year's course.
"The course didn't suit me so it could have gone either way, though we hoped for it to come back for a sprint.
"Thank you to the whole team, without them it would not have been possible. Not just the team but all the staff at the AIS. They do everything for us.
"I missed a lot of racing after crashing at Ronde van Vlaanderen and a lot of the year I was playing catch up. The last couple of months I came good. With a win at Tour de l'Avenir and now here. I'm disappointed, but it is a good finish to the year."
The attacks started from the gun as the 162 riders embarked on 10 laps of the 18.2km circuit.
With four laps to go, Sebastian Schonberger (Austria) and Roman Kustadinchev (Russia) held a 1min 25sec lead over a seven-rider chase group, with the peloton a further minute behind.
Australia was dominant on the front of the peloton with all six riders in attendance.
With six riders out in front and three laps to go, Australia performed a team time trial that strung out the peloton and saw the leader's advantage drop to just 30 seconds.
Despite this, they couldn't prevent South Africa's Louis Meintjes and Stefan Kueng (Switzerland) joining the leading group to swell it to eight.
After making contact with the front of the race Meintjes launched a solo move with 44km to go, quickly establishing a 40 second lead.
Kueng led the chase solo as the remainder of the break fought to keep pace with him.
With two laps to go, Meintjes clung to 16 seconds over the chase group, with the peloton only 10 seconds behind.
Meintjes's solo effort came to an end with 33km to go as he was swallowed by a now 16-strong lead group.
All six Australians remained on the front of the peloton which was 18 seconds behind.
Moments before the lead groupe was caught, Frenchman Kevin Ledanois rode away on the penultimate ascent with 23km to go.
Ledanois held a 13 second lead at the beginning of the final lap over a 80-strong peloton.
With 13km to go, the peloton had Ledanois in their sights with the Frenchman only seven seconds in front.
It was the final climb that was the launchpad for attacks, with Portugal's Joaquim Silva the first to make a move.
He was chased by a small group that included America Tanner Putt and Spanaird Mikel Iturria. Soon Colombian Brayan Ramirez took the lead, as the climbers fought to keep pace with him.
Amidst the pursuit, Bystrom made his move over the top of the climb, five kilometres from the finish line, and quickly took up the torch at the front of the race.
Meanwhile, Australia's Robert Power was part of a five-rider chase group to bring Bystrom back.
The Norwegian held an 11 seconds lead with two km to go on the descent, which reduced to just nine seconds in the final kilometre.
As close as they came, the peloton could do nothing but watch Bystrom ride away for the victory as they prepared themselves to sprint for the minor placings. Norway taking the world title, and bronze, with Australia sandwiched between the two to earn silver.
Under 23 Men: 182km, Ponferrada
1 Sven Erik Bystrom (NOR) 4hr 32min 39sec
2 Caleb Ewan (AUS) 0:00:07
3 Kristoffer Skjerping (NOR)
4 Tiesj Benoot (BEL)
5 Sonder Enger (NOR)
6 Iuri Filsoi (ITA)
7 Hernando Bohorquez (COL)
8 Ilya Davidenok (KAZ)
9 Silvio Herklotz (GER)
10 Mathieu van der Poel (NED)
The first five days of the UCI Road World Championships will be live-streamed on the Cycling Central website, while the final two days will be broadcast on SBS ONE and streamed online.