The 20-year-old American star was forced to dig deep to hold off Hodgkinson in a thrilling battle down the final straight at Eugene's Hayward Field before taking gold in a world-leading 1min 56.30sec.
Hodgkinson, who took silver behind Mu at last year's Tokyo Olympics, finished second once again in 1:56.38, while Kenya's Mary Moraa took bronze in 1:56.71.
Mu has been virtually invincible since bursting onto the international scene as a teenager last year, capturing gold medals in the 800m and 4x400m relay at the Tokyo Olympics.
The main question heading into this year's World Championships was whether Britain's Hodgkinson, also only 20, could make enough of an improvement to threaten the American star.
In a tense final on Sunday, Mu hit the front on the final lap and looked to be in complete control as she edged clear on the final bend.
But she allowed Hodgkinson a glimmer of daylight on the inside and the British runner rallied furiously as the finish line approached.
Mu, however, was equal to the challenge and held on to become the first American woman to win a world 800m title.
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