The stocky veteran overcame a bout of nerves and withstood a late charge by Sydney professional Andrew Evans at Melbourne's Huntingdale Golf Club before sealing the win on the 18th hole with a clutch putt for par.
Senior's final round three-under 68 gave him an eight-under total of 276, sealing his third 'gold jacket' 20 years after his second at Huntingdale in 1995. He won his first in 1991.
The hugely popular Queenslander now owns the records for the oldest winner at all three of his nation's marquee tournaments, having won the Australian Open at 53 in 2012 and the Australian PGA Championship in 2010.
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"I'm getting a bit long in the tooth now," an emotional Senior said at the trophy presentation after donning the gaudy winner's coat.
"But it's amazing some of the things that have happened the last few years."
Senior's performance on the storied sandbelt course stole the spotlight from tournament favourite and former world number one Adam Scott, who finished fifth on four-under after blowing his chance with a horror 77 in the third round.
Scott shot a final round 69 and paid tribute to Senior, who struggles against the big hitters in the modern game but was always a chance on Huntingdale's short holes.
"He's based his career around being very accurate and precise and he's a hell of a competitor," Scott, now world number 12, told reporters.
Teeing off two strokes behind overnight leader Matthew Millar, Senior threw down the gauntlet at the 10th hole, the course's longest par-four at 477 yards, with a sublime two-iron approach that gave him a tap-in birdie for the lead.
Another birdie at the 13th gave him a three-stroke buffer and Senior appeared set to cruise to victory before shanking a three-wood off the tee into trees on the 17th.
The resulting bogey drew him level with fast-finishing Evans in the group behind, but the New South Welshman also stumbled on the penultimate hole to give up a one-stroke lead.
Senior picked the wrong club for his approach on the 18th, landing it in a greenside bunker, but completed a nerve-wracking up-and-down to save par before Evans crumbled with a bogey on the last.
Evans's final round 71 left him joint second on six-under with John Senden (70), a two-time winner on the U.S. PGA Tour, and U.S. Amateur champion Bryce DeChambeau, who finished strongly with a four-under 67.
(Editing by Peter Rutherford and Julian Linden)
