Rafael Nadal's bid for the 12th title crashed after losing to Fabio Fognini in the Monte Carlo Masters semi-finals.
Failing to win his 850th match, the top seed Serb lost to 22nd-seeded Roberto Bautista Agut 1-6, 7-5, 6-3.
With his seventh victory from as many finals at Melbourne Park, the 31-year-old Serb moved past Roger Federer and Roy Emerson, who have six Australian Open titles each.
Roberto Bautista Agut took Novak Djokovic's serve in the second game of the final set for the decisive break and secured victory on his first match point.
12-time major champion Novak Djokovic of Serbia lost in the French Open quarterfinal to lowly-ranked Marco Cecchinato of Italy who rose to the occasion and will now face Dominic Thiem of Austria on Friday.
Two-time defending champion Novak Djokovic was sent crashing out of Wimbledon by big-serving Sam Querrey.
Djokovic, Nadal and Serena cruised into round 2 as Murray narrowly avoided a shock exit.
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