"Unbelievable," said handler and co-owner Kent Boyles.
Rumor was the nation's No. 1 dog last year but fell short to California Journey.
But this year, Best in Show Judge Thomas H. Bradley from Watertown, New York, saw something special in her.
"The German shepherd standard talks about quality and nobility. Sometimes unrecognizable. When you recognize it, it hits you home, and that's what it really is. She is just magnificent."
Earlier Tuesday, Boyles said this would be Rumor's last major show. "She's going to be relaxing for a while, and we'll find an appropriate husband for her. There will be some puppies in the future," Boyles said after the win.
Rumor is named for singer Adele's hit song "Rumor Has It."
The German shepherd was one of seven dogs to advance to the Best in Show competition.
The 5-year-old won the herding group category -- becoming the second dog from that group to ever win. It was the 39th time that a female has won the top prize.
Sea Breeze, a male Irish setter known as Adrian, won Reserve Best in Show, second place.
The seven group winners from Westminster
Best Hound: Daggarwood Delight, a female Norwegian elkhound known as Duffy
Best Toy: Pequest Pickwick, a male pekingese known as Chuckie
Best Non-sporting: Danfour Avalon As If, a female miniature poodle known as Aftin
Best Herding: Rumor Has It V Kenlyn, a female German shepherd known as Rumor
Best Sporting: Sea Breeze, a male Irish setter known as Adrian
Best Working: Speak Of The Devil, a female boxer known as Devlin
Best Terrier: Twice As Nice, a male Norwich terrier known as Tanner