Vekic, who got into the main draw as a lucky loser after defeat in qualifying, needed five match points to finally end Briton Raducanu's resistance and win her first title since 2023.
Raducanu, who reached the final without dropping a set, was given vociferous support throughout but fell just short of landing her first title since her fairytale run at the US Open in 2021 as a teenaged qualifier.
After a frustrating season of illness and injuries, however, she looks rejuvenated just in time for Wimbledon in two weeks, when her run at Queen's means she will likely be seeded, as also will the 29-year-old Vekic who began the week ranked 76th.
Raducanu is now provisionally ranked 31 with Vekic at 32.
Vekic had already beaten a British teenager - Mika Stojsavljevic - this week and on Saturday blazed past another home favourite and Alex de Minaur's fiance Katie Boulter.
Vekic produced a stunning opening set, belting ferocious winners all over the court to leave Raducanu, who had removed tape on her thigh, reeling.
But Raducanu weathered the storm and as Vekic's onslaught began to wane, the British player began swinging more freely to make inroads and forged a double break ahead in the second set.
Vekic got one break back, then saved serve from 0-30 at 3-5, before breaking the Raducanu serve again to level after saving two set points, one with a stunning topspin lob.
Paris Olympic runner-up Vekic then saw three match points go begging as she led 6-5 and, as the match headed towards a tiebreak, both players looked out on their feet.
Raducanu saved another match point in the tiebreak but Vekic earned one more with a superb winner and she finally converted at the fifth attempt as a weary Raducanu sent a groundstroke into the tramlines.
