USA's Chen set a new free skate world record of 224.92 and overall record of 335.30, beating his marks set at March's World Championships in Saitama.
Skating to music from the Elton John biopic 'Rocketman', the 20-year-old landed a quad flip, quad Lutz, quad Salchow and two quad toe loops, one in combination, on his way to a third straight Grand Prix title.
Double Olympic champion Hanyu also landed five quads, including the quad Lutz for the first time in competition since 2017.
The Japanese skater, celebrating his 25th birthday, appeared to give absolutely everything to his performance and collapsed to the ice after his final pose.
He was awarded a score of 194.00 and the silver medal.
Frenchman Kevin Aymoz carried his momentum from the short program into the free with an elegant skate which earned him a personal best score and bronze.
Making his Grand Prix Final debut in Turin, the 22-year-old punched the air after finishing his performance, obviously delighted with what he'd achieved.
And he screamed with delight in the 'Kiss and Cry' upon receiving a score of 178.92, a personal best, before crying tears of joy.
Chen "extremely happy" with world record skate
The mutual respect and admiration between the big two was clear to see.
Chen was typically modest when reflecting on his free skate, and he's already thinking of where he can improve ahead of US Nationals in January.
He said, "I'm extremely happy to be here. I'm extremely happy with the score. I was happy that I was finally this season able to lay down two pretty solid relatively clean programs. Between competitions, I want to continue to improve as much as I can.
"Technically, I did everything I can. But the cleanliness and the general performance can improve. Program components - I'm still not comparable to Yuzu. I want to keep working on that."
Hanyu cites Chen as his "motivation for skating"
Chen has beaten Hanyu to two major titles this year after taking gold at the World Championships in Saitama and the Japanese skater says the rivalry is what keeps him going.
"I really love competing with him because if I am skating alone, if I'm the only one getting over 300 for the total score, I feel really lonely, I can't find motivation for skating," said Hanyu.
"So here [pointing at Chen] is my motivation for skating."
He added: "Of course I can say I have two Olympic gold medals but these are past things. I want to live in the now. I want to compete more and more with Nathan and the other skaters. I wish with Javi [Fernandez, ex-training mate] too."
Hanyu admits the performance left him drained, to the point he was not able to jump his final combination, a difficult triple Axel-triple Axel sequence. But he is determined to bounce back.
"It wasn't ideal for me here," he said. "In the short as well, I feel like I've got a lot to work on. But I think I gave it everything I could today. I just want to start practising again - right now.
"I'm exhausted; I couldn't even pose at the end. But to become the world's greatest again, I know this is a path that I have to follow through. I'm going to train like I never have before." - Yuzuru Hanyu
For Aymoz, meanwhile, the bronze marks a first major medal and the French skater was delighted.
"It was a great experience," he said. "Right now I am a little bit confused because I never imagined to be next to these two guys one day so I am really happy.
"Thank you to Torino and the audience gave me back what I shared. It was a great moment on ice."
Super Sato takes junior crown
Shun Sato staked his claim to be Hanyu's successor in the hearts of Japanese skating fans with a scintillating performance to win the Junior Grand Prix Final.
The 15-year-old landed a quad Lutz for starters and then a mighty quad toe loop and a triple Axel in a stunning skate.
His score of 177.86 was just one point shy of Aymoz's senior bronze medal free skate and smashed the previous world record set by Russia's Daniil Samsonov at this year's JGP Poland by over 14 points.
Sato's total of 255.11 also surpassed Samsonov's best from Gdansk and secured him gold from short program winner Andrei Mozalev.
Samsonov, trained in Moscow by Eteri Tutberidze, took third as Russia filled the lower two spots on the podium.
But all the talk afterwards was about Sato who came into the competition as the less renowned of the two Japanese with Yuma Kagiyama, who finished fourth, the national junior champion.
Interviewed in front of the crowd, he said, "I was a little bit nervous before the free skate, but once I was on the ice I felt very calm and I was able to skate the way I wanted."
After revealing that Hanyu was his role model, he said pandas were his favourite animals so maybe we could soon see the black and white bears raining down onto the ice in major competitions.
Speaking in the mixed zone, Sato explained that watching Hanyu in the senior competition helped him in his skate:
"I watched Yuzuru’s quad Lutz and it looked so effortless. I watched over and over again. Watching Yuzuru’s Lutz helped me not to force it too much."