The Paraguayans reached the final without winning a single match in normal time but their fortune ran out against a Uruguay side who were vastly superior.
Luis Suarez put La Celeste ahead after 12 minutes and Forlan doubled the lead 30 minutes later. Atletico Madrid striker Forlan then added a late third to tie Hector Scarone as Uruguay's leading goalscorer with 31.
Kings of the Copa: Uruguay are now the most successful country in the Copa America with 15 titles
Jumping for joy: Uruguay's Luis Suarez put his team ahead with a typically well-taken goal
Uruguay bossed the first half with the pace and movement of Forlan and Suarez proving particularly troublesome for Paraguay's overworked defence.
Oscar Tabarez's men bristled with intent from the off and could have gone ahead inside two minutes.
Suarez battled his way past two defenders and his scuffed shot was goalbound before Paraguay goalkeeper Justo Villar managed to smother it behind.
Hot shot: Suarez once again struck fear into Premier League defenders with his performance
From the resulting Forlan corner, Diego Lugano powered a header on goal which was superbly parried by Villar, with the follow-up from Lugano blocked by the arm of Nestor Ortigoza on the line.
Paraguay's defence had been the foundation for their run to the final but it was breached for the first time in six hours after 12 minutes.
The ball fell fortuitously to Suarez in the area and the Liverpool striker turned smartly before clipping in ashot which beat Villar via Dario Veron's leg and the left-hand post.
Double trouble: Diego Forlan blasts home the second goal at Monumental Stadium in Buenos Aires
Paraguay almost conceded again shortly after the half-hour mark when Suarez put Forlan through but Villar made an important block with his legs.
Suarez then turned the hapless Veron and lashed a shot into the side-netting before picking out strike partner Forlan, whose volley was easy for Villar.
Uruguay were dominating all over the field and they got the second goal their opening-half display deserved three minutes before the break when Egidio Arevalo dispossessed Ortigozabefore playing in Forlan and his powerful drive easily beat Villar for his first goal in 13 internationals.
Scramble: For much of the first half Paraguay where on the back foot and defending for their lives
Ortigoza almost redeemed himself nineminutes into the second period when his scooped pass found Nelson HaedoValdez and his volley produced a wonderful save from Fernando Muslera, the keeper tipping the ball onto the bar.
Paraguay wasted another route back into the contest after 62 minutes when midfielder Cristian Riveros failed to connect with Ivan Piris' cross at the near post after attempting an unnecessary back-heel.
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The Paraguay rally eventually peteredout and Uruguay could have added a third with 16 minutes to go, EdinsonCavani picking out fellow substitute Sebastian Eguren, whose deflected effort was superbly saved by Villar.
But Tabarez's men did have the final say with a wonderful third in the final minute. Cavani swept a cross-field pass to Suarez, whose cushioned header was perfect for Forlan to run on to and slot past the advancing Villar.
Sealed with a kiss: Suarez was undoubtedly one of the stars of the tournament
Forlan believes his name is now enshrined in South American football folklore after he followed his grandfather and father as winners of the Copa America.
He said: 'It is a pride for the family. Three generations of my family have won this tournament - Forlan will be the last name in the history of football.'
Liverpool striker Suarez added: 'We played as a group. I think when groups are united like this, everyone together and going for the same thing, you can get things done.
'The important thing was getting started well. With two goals in the first half, I think it was very difficult for them to come back.'
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