Australia, who had resumed at 313 for five in their second innings chasing 522 for victory, were bowled out for 406 in the morning session. England won by 115 runs to take a 1-0 lead in the five-match series.
"To win an Ashes test match at Lord's is something that many guys have dreamt of doing over the last 50, 60 years or so and to be the 11 guys who have actually pulled it off, it feels very, very special at the moment," England captain Andrew Strauss said.
Flintoff, who will retire from test cricket after the fifth test at the Oval next month, said: "It's nice to get five on the last morning and take the plaudits but it's been a real team effort."
England's only test victory of the 20th century against Australia at Lord's came in 1934 when Yorkshire left-arm spinner Hedley Verity took 15 wickets on a rain-affected pitch, dismissing Don Bradman twice.
"We were outplayed right through the course of the game," Australia captain Ricky Ponting told Sky TV. "I think from the first ball on the first day, right up until the end today, I think England have been the better team."
Flintoff bowled magnificently for the second day in a row, rapping Brad Haddin on the pads with his third ball which beat the Australian wicketkeeper for pace.
The next drew Haddin forward, caught the outside edge and flew low to Paul Collingwood at second slip. He had not added to his overnight score of 80.
Mitchell Johnson got off the mark with a handsome drive for four off Anderson. He was then struck on the pads by a low full toss from Flintoff which would have hit the stumps but umpire Rudi Koertzen had already signalled a no-ball.
Michael Clarke, 125 not out overnight, unfurled a glorious off-drive to the boundary off Stuart Broad, who had replaced James Anderson at the Nursery end.
Johnson off-drove Broad for four to bring up the 350 but then lost Clarke, who was bowled for 136 by Graeme Swann's second delivery of the morning. The batsman was deceived in the flight by a ball which knocked back his off-stump.
CROWD SUPPORT
Flintoff, still steaming in from the Pavilion end after more than an hour of high-pace bowling, bowled Nathan Hauritz for one and Peter Siddle for seven.
Johnson, dropped on 36 hitting a difficult return chance to Swann, continued to play his shots while wickets fell at the other end. He was the last man out, bowled by Swann for 63 with nine boundaries.
Flintoff, who twisted his right knee during the first drawn test in Cardiff, said he would have been unwilling to surrender the ball on Monday.
"It's one of those situations where you are a little bit tired or you might be aching a little bit but when the crowd get behind you you just can't stop," he told Sky TV.
"I just want to give a special mention to Andrew Flintoff, who was magnificent this morning," Strauss said.
"We are not going to get carried away, there's a lot more cricket to be played in this series but to go 1-0 up and, I think, deserve a victory, makes it even better."
Ponting said his team needed to pick themselves up again for the third test at Edgbaston, starting on July 30.
"One-nil down now with three test matches to go we've got to regroup and hit the ground running at Edgbaston," he said.
"At the end of the day we were beaten by over 100 runs in a test and we can't change anything that's happened in the course of the game, only our own performances and that's what we've got to do with some hard work over the next week."
When the crowd applauded his comments, Ponting added, laughing: "That's the first round of applause I've got for five days."
