Roared on by the 12,000-strong crowd at the Warsteiner Hockeypark, the hosts began strongly and took the lead in the 18th minute when forward Christopher Zeller burst into the circle and sent a deflected shot low into the goal.
Australia hit back almost immediately, with semi-final penalty hero Ulrich Bubolz unable to keep out a powerful strike from Mark Knowles at a penalty corner.
Less than 10 minutes later the Kookaburras were ahead. Matthew Naylor fired the ball high into the net past Bubolz from another short corner.
Australia, who won their only World Cup in 1986 in London, extended their lead at the start of the second period when Troy Elder scored after a break down the left.
Germany forced their way back into the match with two quick goals. Moritz Fuerste slid the ball in for 2-3 and veteran Bjoern Emmerling sent a lucky reverse-stick shot looping over Stephen Mowlam to level the score.
Five minutes later Germany retook the lead. Strong running from the superb Zeller took him into the circle and he cleverly slipped the ball underneath Mowlam to send the partisan local supporters wild.
Australia pressed for an equaliser, with Luke Doerner firing the ball against a post in the 66th minute, but Germany held firm.
Australia were missing 2004 world player of the year Jamie Dwyer. The clinical forward picked up a hamstring strain in the 4-2 semi-final win over South Korea.