Misty Hyman not only celebrates winning the gold, but also setting a new Olympic record.(AP)

"I had to look three times, I really did," Hyman said. "Then I started screaming and shaking."

Hyman led all the way to win in an Olympic record 2 minutes, 5.88 seconds, just missing O'Neill's world record by seven one-hundredths of a second.

"I've played it over so many times in my head, but I never thought it would come true," said Hyman, who, discouraged by health problems and slow times, was ready to quit swimming in May.

In her signature race, O'Neill finished second in 2:06.58. Petria Thomas of Australia took bronze in 2:07.12.

O'Neill, known as "Madame Butterfly," broke the oldest record in swimming in May at the Australian Olympic trials when she lowered Mary T. Meagher's 19-year-old world record.

But Hyman went out strong and held a body-length lead over O'Neill at the 150-meter mark. The crowd of 17,500 at the Sydney International Aquatic Center urged O'Neill on with shouts of "Susie!" but the Aussie never made a run at Hyman.

"I swam as well as I could," O'Neill said. "Obviously, I'm disappointed. Unfortunately, I know my best time would've done it."

Hyman, a first-time Olympian, swam a lifetime best to stun O'Neill, who was the heavy favorite. She broke out in a huge grin and screamed "Oh, my God!" over and over when she realized she'd won.