Castroneves came from last place Sunday to win the PEAK Indy 300, but Dixon, who knew coming in he only had to finish eighth or better to win the title, took the lead with a perfect pit stop late in the race and nearly held off Castroneves for the victory, crossing the finish line inches behind the winner.
After nearly 30 minutes, official timing and scoring called the margin of victory 0.0033 seconds - slightly more than the 0.0024 margin Sam Hornish Jr. had over Al Unser Jr. on the 1.5-mile Joliet track in 2002.
It was sweet redemption for Dixon, who lost both the race and the championship to Dario Franchitti last year at Chicagoland Speedway when he ran out of fuel two turns from the finish.
Dixon, who came into the race with a 30-point lead, wound up winning the title and the $1 million bonus that goes with it by 17 points.
It was hardly a perfect race for Dixon, who didn't lead until 15 laps from the end and fell as far back as 11th in the middle of the 200-lap race. But he came on strong when he had to and was able to celebrate the title, hugging team owner Chip Ganassi and getting pounded on by his crew.
"It's been an amazing year, starting with marrying my beautiful wife, Emma, and just a great race season," Dixon said.
"It was tough, especially when you're racing around 10th. You've got people in front of you, people behind you and they're all trying to do crazy things and it's really tough to keep yourself calm and know that you've got the car to get to the front and just wait for a green-flag run to make it happen was happen was probably the hardest part."
His pit stops were not great most of the day, including one in which a tire briefly got away from one of his crewmen, but Dixon said the last stop was perfect.
"The crew guys, they might have had one problem there, but look what they did at the end," he said. "They brought us through."
Castroneves, who earned a 3-point bonus by leading a race-high 80 laps, was excited after being told he won the race after getting out of his car.
"I knew I won it, I knew," he said. "We try everything, everything, to win. We did everything we could. Scott Dixon and those guys they had a little better luck and they wound up winning the championship. Congratulations to them."
Dixon became the fourth straight Indianapolis 500 winner to go on to earn the series championship, following Dan Wheldon, Hornish and Franchitti.
The champion gave Target Chip Ganassi Racing its sixth open-wheel title, including four in the now-defunct CART/Champ Car series. Ganassi's team of Scott Pruett and Memo Rojas also wrapped up the Rolex Grand-Am Sports Car Series championship a week ago.
Dixon added the title to the one he won in 2003, his first year in IndyCar, by racing all season with consistency. He finished with a record-tying six victories and 14 top-five finishes in 17 starts.
Things looked bright for Dixon and particularly bleak for Castroneves on Saturday when the Brazilian qualified fourth, but was penalized to the rear of the 28-car field for driving under the white out-of-bounds line at the bottom of the banked oval on each of his four laps.
But the determined Castroneves, trailing Dixon by 30 points and knowing he had to win or finish second and lead the most laps to have any shot at his first series title, gave himself a chance by charging from the green flag.
His No. 3 Team Penske Dallara sliced through traffic, moving quickly into contention. Castroneves got to 10th on lap 20, passed Dixon for third on lap 66 and took the lead by beating teammate Ryan Briscoe out of the pits during a caution flag stop on lap 78.
Meanwhile, Dixon, who had a seemingly unbeatable 78-point lead with just three races to go, came into the last points race of the season knowing he was vulnerable again, thanks to a late-season charge by Castroneves, who finished with two victories and eight second-place finishes.
The 28-year-old New Zealander started next to pole-winner Briscoe but fell as far back as 11th in the middle of the race and never led until 15 laps from the end after he came out of the pits about three feet ahead of Castroneves after their final stops.
From that point to the end, it was a two-man race, with Castroneves chasing Dixon. He finally got alongside Dixon on lap 199 and each got a nose ahead several times until Castroneves somehow managed to lead at the finish line. It took a photo finish camera to make the determination.