WATCH the US Open from the quarter-finals onwards LIVE, FREE and in HD on SBS or streamed live via SBS Sport and SBS On Demand.
With Osaka in control of the match after taking the first set, chair umpire Carlos Ramos sent Williams into a rage when he handed the 23-time grand slam champion a code violation in the second game of the second set, after spotting her coach Patrick Mouratoglou making some hand signals from the player's box.
A string of poor behaviour followed from Williams and she went on to incur a point penalty for smashing her racket before being slapped with a game penalty at 4-3 down, after she launched into a verbal attack against Ramos, accusing him of being "a liar" and "a thief for stealing a point from me".
The game penalty put Osaka 5-3 up and the 20-year-old Japanese kept her cool to pull off a historic win.
The coaching warning ignited the first outburst from Williams, who screamed at Ramos that she was a mother and would never cheat, adding that she would rather lose.
Order seemed to be restored when Williams finally broke Osaka for the first time to go up 3-1 but things quickly slid out of control when the Japanese 20th seed broke back, prompting the former world number one to smash her racket and Ramos to issue the point penalty.
That brought another tirade from Williams which was followed by a game penalty, bringing a shower of jeers from the packed stadium and another explosive outburst from the teary American.
Later Mouratoglou admitted he had been trying to coach Williams from the stands with some hand signals but accused Osaka's coach Sascha Bajin of doing the same.
“I am honest. I was coaching," Mouratoglou said.
"I don't think she looked one time.
"Sascha was coaching every point too."
The controversial finish cast a cloud over what should have been Osaka's shining moment.
Standing on the podium waiting to be handed her trophy and a winner's cheque for US$3.8 million (A$5.35 million), Osaka heard only boos as an angry crowd took out their frustration on Ramos, who stood to the side.
“I know everyone was cheering for her and I’m sorry it had to end like this,” Osaka said.
"I just want to say thank you for watching the match."
“It was always my dream to play Serena in the U.S. Open finals… I’m really grateful I was able to play with you."
The result prevented Williams from winning a record-equalling 24th Grand Slam title.