The 18-year-old crossed for his hat-trick try after the final siren to give the All Blacks a 27-24 win in front of a sellout 37,095 crowd in the Allianz Stadium.
Australia had led 24-22 into the closing moments, but could not retain possession, handing the 12-time Sevens World Series champion one final opportunity, which player of the tournament Ioane coolly finished.
His elder brother Akiro was named player of the final and also scored the opening try in New Zealand's thrilling 14-12 semifinal win over Fiji.
New Zealand had beaten the South African "Blitzboks" 24-21 to win last weekend's HSBC Wellington Sevens final with a similar late try.
Fiji, the defending series champion, beat South Africa 26-12 in the battle for third place in Sydney, reclaiming the lead in this season's overall standings.
South Africa and New Zealand after its back-to-back wins are tied with Fiji on points, but trailing on points difference after four rounds after the 10-venue competition.
The Sydney final was a rematch for the two sides, who tied 17-17 in pool play Saturday.
Australia led almost throughout as Henry Hutchison (2), Sam Myers and Greg Jeloudev crossed, but the All Blacks kept in touch thanks to Iaone's haul, with Tim Mikkelson and Kurt Baker also scoring tries.
Captain Mikkelson acknowledged the inspired play of the host team in front of a passionate crowd.
"I just want to thank Aussie, for an awesome two games over the weekend, you guys played awesome and this is an awesome tournament that will just grow from year to year," he told the official World Sevens Series website."And to our boys, another awesome effort, we said it would take 20 minutes to win and we just kept on going and we got the victory in the end
All Blacks 15-a-side star Sonny Bill Williams, who is reverting to sevens in a bid to add Olympic gold to his double World Cup triumph, had a mixed day, being sin-binned for a high tackle in the first half of the final, allowing Australia to build its lead.
At least Williams got on the pitch, his Australian Wallaby counterpart Quade Cooper, who has also been recruited to sevens play, was kept sidelined from the weekend squad despite dashing back from playing for French side Toulon.
Argentina won the Plate final, beating Kenya 24-0. The next leg of the World Series Sevens is in Las Vegas on March 4-6.
Sunday's action in rugby union's Six Nations tournament saw a thrilling 16-16 tie between Ireland and Wales in Dublin.
Host Ireland led 13-0 but Wales fought back to lead 16-13 after Taulupe Faletau's try was converted by replacement fly half Rhys Priestland, who was also on target with a 72nd minute penalty to edge his side ahead.
Home fly half Johnny Sexton leveled it for Ireland with a penalty before Priestland just missed out with a late drop-goal attempt.
Saturday saw a win for England over Scotland in Eddie Jones' first match in charge as coach, while France edged Italy.