It is Lorenzo's second world title after he won in 2010.
Starting from pole, Honda rider Stoner was beaten off the start line by both Lorenzo and Pedrosa, with Pedrosa taking the lead from his fellow Spaniard late on the opening lap.
But Pedrosa slid out of control while taking a corner less than a minute later.
He returned his Repsol Honda to the pits, and retired from the race.
For Stoner, it was a remarkable result in front of a record Phillip Island MotoGP attendance of more than 53,000.
Once he inherited the lead from the fallen Pedrosa, Stoner built his lead on every lap - Lorenzo perhaps content to do what he needed to in order to wrap up the title.
Stoner eventually beat Lorenzo by more than nine seconds.
Stoner had been dominant all weekend at Phillip Island, having lapped a second quicker than his rivals for most of the practice and qualifying sessions.
More than 122,000 fans attended the three-day event - a 25 per cent increase on last year as spectators flocked to see Stoner in his last MotoGP on Australian soil before his retirement.
-AAP