Australia were set a revised target of 116 runs in 35 overs after a two-hour rain delay by the West Indies. Martyn and Watson batted sensibly after the world Champions found themselves in early trouble at 13 for two. However, they secovered to compelete the chose in 28.1 overs and make 116 for two, to win by eight wickets with 6.5 overs to spare.
In the process, Australia finally broke the Champions Trophy jinx getting their hands on the only trophy which had eluded them so far.
Martyn was unbeaten on 47 and Watson on 57 runs.
West Indies had earlier set a target of 139 after being bowled out for 138 runs in 30.4 overs. But that target was revised after unseasonal rains lashed Mumbai this evening, forcing the umpires to reduce the match to 35 overs for the Australians and the target was reduced to 116 from 139.
West Indies, who had won the toss and decided to bat, had earlier been laid low by a superb spell of bowling by Nathan Bracken and Glenn McGrath after the openers had got them off to a flyer, reaching 50 in only the sixth over to dismiss them for a paltry 138.
West Indies then began defending the total with Lara opening the bowling with off spinner and man of the tournament Chris Gayle, and, though the spinner was tidy enough, Lara stopped the experiment after giving him just one over.
Lara then brought on Ian Bradshaw in place of Gayle and it paid immediate dividends when the left arm pacer got one to move away from Adam Gilchrist forcing him to play at the ball and the resultant edge was well taken at first slip by Chris Gayle to leave Australia at 12 for one and one of their main batsman back in the pavillion for just two runs.
In the next over, Jerome Taylor had the prized wicket of Ricky Ponting when the Australian captain, playing across the line trying to whip the ball on the leg side, was rapped on the pads in front of the wicket. Ponting did not get off the mark and left Australia on 13 for two.
Martyn then joined Watson and the two slowly took the Australians to victory, with Martyn looking in prime touch hitting three glorious boundaries to get into the groove.
Watson at the other end was also solid, clipping Taylor to the midwicket fence to show his intent. The West Indian bolwers tried to lure him into playing his favourite pull shot on a slow and low wicket, but Watson did not fall for the trap and collected his runs through flicks and deft placements on the off side.
Restarting the innings after the rain delay, Watson and Martyn played themselves in again keeping the scoreboard ticking with singles and an occasional two. The duo had a good look at the way the wicket was playing after the covers were pulled off, waiting to see if the bowlers were getting any extra help due to the moisture in the wicket.
However, after having a good look at the wicket, both of them proceeded to play some delectable shots with Martyn showing the class he possesses, picking the gaps to perfection. He started off by flicking Corry Collymore to the midwicket boundary to bring up the 50-run partnership for the third wicket in 70 deliveries.
Watson then opened up as he glided Bradshaw to third man boundary and then took two leg side boundaries of Taylor.
Australia then brought up their hundred in the 25th over and soon Watson brought up his individual half century in 81 balls which was studded with four boundaries.
The West Indian skipper then brought on part time leg spinner Ramnaresh Sarwan, suggesting that the Windies had given up all hope, and duly the winning runs were hit by the star of the day Watson with a flick to fine leg off Sarwan.
Earlier, Australian pacemen Nathan Bracken and Glenn McGrath gave a superb display of fast bowling as they bowled out the West Indies for 138 runs in just 30.4 overs after the Carribeans had elected to bat first on winning the toss.
The defending champions West Indies were given a flying start with Chanderpaul and Gayle taking the Australian opening bowlers to the cleaners. The one to suffer was Brett Lee who was taken for 36 runs in his first three overs.
Chanderpaul started the onslaught on Lee hitting the paceman for two glorious off side fours. Then in Lee's second over, Chanderpaul on-drove him for a boundary and then top edged a hook over third man for a lucky six.
Chanderpaul was not yet done with Lee as he flicked him off his toes for another four. At the other end, Gayle took two boundaries of Nathan Bracken as West Indies reached 49 for no loss in just five overs.
Chanderpaul, however got a little too adventurous as he tried to slash at a wide delivery from Bracken only to chop the ball back onto his stumps. The West Indian opener made 27 in just 18 balls with four boundaries and a six.
The departure of Chanderpaul saw Gayle take over with Ramnaresh Sarwan also looking confident, opening his account with a silken cover drive of Bracken.
Ricky Ponting then bought on his seniormost bowler Glenn McGrath for the expensive Lee and saw his leading bowler being smashed for 22 runs of his first two overs, being greeted by Gayle with a huge six over midwicket.
However, at the other end Bracken was giving all sorts of problems to the batsmen with his left arm seamers and he got his second wicket when Sarwan played a little too early and saw his leading edge go straight to mid-on where Brad Hogg made no mistake. Sarwan made just seven and West Indies were 65 for two in the eighth over.
Gayle, then got stuck into McGrath pulling him over the square leg fence for a six and then on the next ball repeating the shot only this time going over mid-on for a boundary. The third ball saw Gayle unleasing a ferocious cover drive which left the fielders stranded as the ball raced to the cover fence for a four.
Bracken, at the other end, got Gayle with the ball of the match so far. The ball came in with his arm and then moved just that much to beat Gayle's bat and knock down his off stump. Gayle made a whirlwind 27-ball 37 with six boundaries and two sixers to leave West Indies at 80 for three in the 10th over.
Lara and Bravo then tried to rebuild but with McGrath finding his form and Bracken also bowling beautifully, the runs dried up as the batsmen struggled to find their bearings on a pitch which was getting lower and slower as the match progressed.
Lara, after sticking out for 26 minutes and facing 18 balls for his two was put out of his misery by Glenn McGrath. Lara edged an away going delivery which was taken acrobatically by Adam Gilchirst diving to his left to leave West Indies in a spot of bother at four for 88.
McGrath then also got Runako Morton who edged an outswinger to the keeper Gilchrist for 2 and Windies were looking down the barrrel at five for 94.
Samuels and Bravo then tried to repair the damage taking the score to 113, but then Watson was brought on and he dismissed Samuels and Carlton Baugh in quick succession.
Brad Hogg then got the wicket of Bravo for 21 trapping him in front and the last chance of West Indies to cross 150 was gone as Australia bowled out the West Indies for just 138 in 30.4 overs.