Shin had been on track for a record-setting victory before holding on for a two-shot win with a 17-under-par 274 total as hopes of a first home triumph in a decade quickly evaporated on Sunday.
The South Korean former world No.1 had led by as many as seven shots in the final round but had to drain a seven-foot putt at the last to close with a round of three-under 70 and avoid an even more anxious finale.
Bidding to become the first player in the tournament's 50-year history to complete a winning hat-trick, Buhai had a 12-foot birdie attempt on the 72nd hole to apply pressure on Shin.
But the South African shaded the cup as the 36-year-old Shin added a 65th professional title to her incredible CV.
Shin is mobbed by her entourage in one form of liquid celebration after her Kingston Heath triumph. (Con Chronis/AAP PHOTOS)
"Now I can breathe," Shin said.
"I only had one Australian Open trophy so I am really excited for this next one, especially at this golf course at Kingston Heath.
"I lost in 2008 to Karrie Webb so now I feel much better."
Also a two-time British Open champion, Shin first had her name etched on the Patricia Bridges Bowl in 2013.
Her 17-year-old amateur compatriot Hyojin Yang finished third at seven under, 10 shots behind the winner and eight adrift of the runner-up, after positing a final-round 72.
Hannah Green and fellow LPGA Tour star Grace Kim were the leading Australians in a tie for fourth at six under.
But it was a forgettable day for Green, who started just two shots behind Shin and hopeful of capping a stellar season with a fourth title of the year.
Instead, Green finished with a horror six-over 79 as the day - and the spoils - belonged to Shin.
With more shades of brilliance, Shin jumped out to a six-shot lead even before the turn.
She collected two birdies and a chip-in eagle at the par-4 fourth hole to surge to 17 under as Green collapsed.
The West Australian bogeyed the fourth and sixth holes to fall seven shots behind but much worse was to follow as Green racked up a disastrous triple-bogey seven on the seventh.
After dragging her tee shot left into the trees, Green had to punch her ball out on to the adjacent sixth fairway before sinking her approach into the bunker and three-putting.
She never recovered, leaving only Buhai to challenge Shin down the stretch.
"Overall I'm just really happy with how I tried to fight out there. Obviously, I was struggling very hard and I probably could have been even worse," Green said.
"I just felt like, not to say that the other players were getting lucky bounces, but I just felt like I didn't have a lucky break.
"So, overall still happy with the result."
Buhai closed the gap to two thanks to five back-nine birdies and a nervy three-putt from Shin, before the Korean great hung on.
"This is golf," Shin said.
"If I had like a few shots, I'm still trying to keep focus on my game because on this golf course with these weather conditions, nobody knows until the end.
"I tried a little bit just to touch it but some holes work, some holes not working - but I'm still holding my trophy."
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