The game exploded into life in the 26th minute, United's Cristiano Ronaldo leaping high to power home a pinpoint header following a Wes Brown cross. United went close to increasing their lead after a breathtaking counterattack saw Petr Cech in the Chelsea goal make two rapid saves in succession from first Carlos Tevez and then Michael Carrick.
However, as half time approached, Chelsea hit back, Frank Lampard taking advantage of deflections off Nemanja Vidic and Rio Ferdinand to slot the ball into the United net.
The second half saw Chelsea seize the initiative, a Didier Drogba shot bouncing back off the post in the 77th minute. However, the game ended 1-1 and went into extra time as the rain poured down at the Luzhniki stadium.
Chelsea were again denied by the woodwork in the opening minutes of extra time when a Lampard shot came back off the bar with Manchester United goalkeeper Edwin Van der Sar beaten.
John Terry was on hand to rescue Chelsea in the 10th minute of extra time heading Ryan Giggs' header off the line. Giggs had earlier come on as a substitute for Paul Scholes, making a record 759th appearance for the club, breaking the record of Sir Bobby Charlton, who was watching in the stands.
A mass brawl looked on the cards with minutes remaining on the clock as Chelsea's players protested over what they felt was a lack of sporting manners on United's half when Tevez failed to 'properly' return the ball to Chelsea after Petr Czech had put it out to allow Terry to receive treatment for cramp. In the ensuing fracas, Drogba slapped Vidic and was shown red, much to the delight of the Manchester United fans.
The game then went into a penalty shoot out. The match had begun at 10:45 p.m. local time, and it was already gone 1:00 a.m. in the Russian capital when Tevez stepped up to take the first spot kick, hammering his effort home.
With the score at 2-2 on penalties, Ronaldo cracked under pressure, Cech clawing away his penalty. Lampard, Owen Hargreaves, Ashley Cole and Nani then converted, leaving Chelsea captain Terry with the chance to earn his side their first ever Champions League trophy.
It was not to be however, Terry's shot skimming off the outside of the post, causing Chelsea owner's Russian Roman Abramovich to clutch his heart in despair. The game then went to a sudden death shoot out, and after Giggs had calmly slotted home, Nicholas Anelka, who had come on as a substitute in extra time, saw Van der Sar beat away his shot.
Manchester United were champions of Europe for the third time, and, fittingly, their triumph came exactly fifty years after the 1958 Munich air disaster in which 23 people, including eight members of the side, were killed in a plane crash as the team came home from a European Cup away game in Belgrade.
"It is a fantastic achievement," said Manchester United manager Sir Alex Ferguson after the game. The victory means Ferguson joins an elite club of managers to have won Europe's most prestigious club competition twice.
"It's not the last time you will see Chelsea in the final," Chelsea's manager Avram Grant vowed. "You will see us back and we will win the final."
That may well be true, but nothing could hide the Israeli's disappointment at a season which has seen the Londoners lose to Tottenham in the Carling Cup final, beaten into second place in the Premier League by United and come so close to glory last night in Moscow.
And as for United and their players? "It is the happiest day of my life," said a beaming Ronaldo, his penalty miss forgotten.
Manchester United will now play Zenit St. Petersburg in the Super Cup, the annual match between the Champions League winners and the UEFA Cup victors, in August.