The 32-year-old Larrazabal, who took his tally of European Tour wins to four, finished 17 under for the tournament after firing six birdies on Sunday to secure victory in the Bavarian capital for the second time since 2011.
He is only the third multiple winner in Munich after Paul Azinger (1990, 1992) and Thomas Bjorn (2000, 2002).
England's Chris Paisley finished third, a further stroke behind on 15 under.
Stenson had staged a comeback with a flawless final round of 65, which included five birdies and an eagle, for a 16 under total but it was not enough to rein in Larrazabal.
It was the Spaniard's first win on the Tour since the 2014 Abu Dhabi HSBC Golf Championship 18 months ago and could see him move into the world's top 70 from his current ranking of 118.
(Reporting by Karolos Grohmann; editing by Toby Davis)
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