Dujardin topped the standings with the best freestyle score of 93.857 out of 100 percent on Monday, below the world record of 94.3 she set in 2014.
She became the first British woman to retain an individual Olympic title and is now Britain's joint most-decorated female athlete in the Games.
Germany's Isabell Werth took silver with an 89.071, becoming the first equestrian in the sport's three disciplines to win 10 Olympic medals. Fellow German Kristina Broring-Sprehe claimed bronze after Germany won the team title on Friday.
Dujardin, 31, won individual and team gold four years ago in London and has since broken numerous dressage records with 14-year-old Valegro.
"It was just one of those magical rides... he couldn't have done any more if he had tried," she told reporters of Valegro, the horse she trained as a stable hand and plans to retire soon.
"I think that's why I've been so emotional today - I know I'm not going to do another Olympics with him, I probably won't do another world championship with him," she said through tears. "He's really the horse of a lifetime. He is a complete legend."
Werth agreed, saying she would miss the record-breaking pair.
"For top sport you need top competitors and I really enjoy competing against the best," she said.
Dujardin's day got more emotional when her fiance held up a banner saying "Will you marry me now?" to the cameras.
The top 18 individual riders started with a clean slate to ride for individual medals in the freestyle competition, a routine of choreographed moves to music that is essentially the equine version of a gymnastics floor routine.
American Laura Graves, a former hair stylist riding a horse she trained herself, came fourth, meaning the top dressage scores were all claimed by women in a rare Olympic event in which they compete against men.
Monday's freestyle competition, sometimes referred to as horse dancing, featured a Swedish horse and rider pair performing extended trots to the Beach Boys' "Good Vibrations". Dujardin's music was Brazil-inspired.
Spain's Severo Jurado Lopez cantered to Santana's "Smooth" before coming down centre line to Bon Jovi's "It's My Life" to thunderous applause. His fifth-place score of 83.625 was widely booed by an audience that thought it was too low.
Equestrian show jumping medals will be awarded on Wednesday and Friday.
(Editing by Ed Osmond and Bill Rigby)
