Phillips, 21, a pawn shop worker from Leesburg, Ga., looked stunned after host Ryan Seacrest announced his name, then wordlessly accepted a hug from Sanchez and congratulations from his fellow finalists.
He dissolved into tears as he sang "Home," the song that may be his first single.
Phillips received the winning share of the record-high 132 million votes cast after Tuesday's final showdown with high school student Sanchez, 16, of Chula Vista, Calif. The vote count was not announced.
His victory extended the "American Idol" winning streak for men to five consecutive seasons. The last female to win, and the last non-white, was Jordin Sparks in 2007.
Phillips has more in common with the last four winners than gender. Like them, he is a young Caucasian guitar player, also known to "Idol" watchers as WGWGs — white guys with guitars.
Last year's winner was Scotty McCreery, preceded by Lee DeWyze, Kris Allen and David Cook.
Sparks, 22, was among the guest stars who helped fill out the two-hour finale show, among them Rihanna, Neil Diamond, Reba McEntire, Chaka Khan and John Fogarty. "American Idol" judges Steven Tyler, with his band Aerosmith, and Jennifer Lopez also performed, but it was Sanchez and Jennifer Holliday who stood out with a powerhouse duet on "And I'm Telling You I'm Not Going."
Besides music, there was a marriage proposal for the season 11 finale: Former contestants Ace Young and Diana DeGarmo got engaged on stage.
Young, 31, a season five finalist, told Seacrest that he and DeGarmo, 24, had just moved in together. Then Young got down on one knee and popped the question to her.
"I love you to death. You're my best friend," Young said in his proposal, which included a jarring credit for the jeweler who made the engagement ring he was offering. DeGarmo, a runner-up in season three, tearfully accepted, her head bobbing up and down.
But the point of the finale, saved for the final minutes and the highest possible ratings, was anointing the newest Idol and winner of a record contract.
During the three-song showdown Tuesday between Phillips and Sanchez, the show's judges praised his performance across the board. Sanchez was faulted for a lackluster rendition of her third song, "Change Nothing."
Although some critics dismissed Phillips as a Dave Matthews clone, viewers embraced him for his humility, his on-camera mugging and his memorable acoustic covers of songs like Usher's "U Got It Bad." In weekly tallies, Phillips never fell among the low vote-getters.
On Tuesday, he earned consistently high marks from the show's judges, while Sanchez faltered on "Change Nothing," the song that could serve as her first release.
The teenager agreed with panelists Randy Jackson, Lopez and Tyler, saying she should have gone more "urban" with her song choice.
Phillips had better luck with the slow-tempo, acoustic tune "Home," which the judges said recalled artists like Fleet Foxes, Paul Simon and Mumford and Sons. At one point during Phillips' final performance, the pawn shop worker was accompanied by a marching band.
It was a hit with the panel. Jackson, beaming, exclaimed: "I love the song. I love you. I love the production. I love the marching band. Everything about that was perfect."
Last year's contest between McCreery and runner-up Lauren Alaina drew more than 122 million votes, the record that was broken Wednesday.