Nadal thrust his arms into the air and pumped his fist after a long ball by Nalbandian made him the champion of the indoor clay-court tournament for the second time. The Spaniard also won the event in 2005.
"I'll definitely enjoy this one because of all the problems that I've gone through with the knee," he said. "When I won for the first time here I was just starting and hopefully this will mark a new beginning."
It was Nadal's 51st singles title, and first since winning the French Open for the seventh time last June.
Nadal struggled to find a rhythm in the beginning but was still able to break Nalbandian's serve twice to take the first set. He then rallied from 3-0 down in the second to win six straight games and close out the match in 1 hour, 18 minutes.
"When the knee is feeling better like today I feel like that I can do more of the things that I used to do my entire life," he said. "If the pain is bearable like it was today, then it's fine."
The 93rd-ranked Nalbandian made his first appearance in a final since he was disqualified for kicking an advertisement board and injuring a line judge at Queen's Club last June. The former world No. 3 hasn't won a tournament since he secured his 11th title in 2010 in Washington.
Nadal had complained of soreness in his knee after Friday's semifinal, which marked his second three-set match at the tournament.
He looked far from his best in the final, and didn't seem to be moving well. The knee visibly bothered him at times and he left many balls unchallenged throughout the match.
But with support from the crowd, which included former Brazil star striker Ronaldo and mixed martial arts champion Anderson Silva, Nadal took control of the match in the second set to secure the victory.
Nadal converted five of his eight break points against Nalbandian and was broken twice by the Argentine.
He took the lead for the first time with a break in the sixth game, then broke Nalbandian again in the final game to close out the set.
The Argentine came out strong in the second set and broke Nadal twice in a row, but the Spaniard quickly rebounded with two breaks and then cruised to the title in front of nearly 10,000 people packing the Ibirapuera arena.
"I didn't play my best match today, Rafa was much better," Nalbandian said. "I was ahead in the second set but I couldn't take advantage of it."
The 26-year-old Nadal, currently No. 5 in the world, is recovering from a torn and inflamed tendon in his knee. He returned to action at the VTR Open in Chile last week, losing the singles and doubles finals.
The final in Brazil was only his eighth singles match since returning. He withdrew from doubles in Sao Paulo after winning the first match with Nalbandian as his partner. Nadal said he wanted to rest his knee for the singles tournament.
The 11-time Grand Slam champion admitted the level of the competition in Brazil was not as high as in other tournaments but said it wasn't bad either, giving him the perfect opportunity to test his knee. The Spaniard will play another clay-court tournament in Mexico in two weeks.
"Right now I'm just thinking about celebrating this title, it means a lot to me," Nadal said. "I still need time, so I'm thinking day to day, week to week."
Nadal had won four of his six career matches against Nalbandian, the previous one a three-set victory in last year's Indian Wells quarterfinals. Nalbandian's last victory over Nadal was in 2007 in the final of a Master Series tournament in Paris.
The 31-year-old Argentine made his season debut in singles at the Brazil Open. He was out of action for several months last season because of an abdominal injury.