Assefa clocked two hours, 11 minutes and 53 seconds, more than two minutes ahead of the previous world mark of 2:14:04 set by Kenyan Brigid Kosgei in Chicago in 2019.
"I wanted to break the marathon world record, but I couldn't imagine that it would result in a time under 2:12," said the 29-year-old.
"I am very happy."
She finished almost six minutes ahead of Kenyan Sheila Chepkirui, while Tanzanian Magdalena Shauri finished third, nearly seven minutes behind Assefa.
Assefa broke away early in perfect conditions in the German capital and continued her stunning time to become the first woman to set the world record in Berlin since Japan's Naoko Takahashi in 2001.
She crossed the line just after men's world record holder Kipchoge won his race in two hours, two minutes and 42 seconds.
Kipchoge finished 31 seconds ahead of countryman Vincent Kipkemoi with Ethiopian Tadese Takele third at 42 seconds.
Kipchoge's fifth win takes him past Ethiopian Haile Gebrselassie's four victories but the Kenyan finished outside his previous world record, set last year in Berlin, of 2:01:09.
"Sure, I expected myself to be able to set a world record again, but I can live with the fact that it didn't work out," Kipchoge said.
"You can't do that every day. I hope I can repeat my victory again at the 2024 Olympics in Paris, but I would also be happy with the podium."
'Coming home'
Despite doubts after a surprise sixth place at the Boston Marathon in April, 38-year-old Kipchoge came into the race confident, saying he felt he was "coming home" at a race he has won four times - and set the world record twice.
Kipchoge and Ethiopian Derseh Kindie pulled away from the pack early, the two crossing the halfway point with a split of 60:21, slower than the Kenyan's 2022 world-record time of 59:51.
Kindie, whose personal best stands seven minutes outside the world mark, kept pace with Kipchoge until 31 kilometres, where he suddenly fell back and appeared to drop out of the race, walking gingerly on the footpath as other runners overtook him.
Kipchoge continued to maintain his pace and crossed the line well clear of other runners for a record fifth win.
Two minutes before the marathon began, police were called into action, dragging climate protesters carrying buckets of orange paint from the track within sight of the runners standing on the starting blocks.
As swiftly as the protesters swarmed the track they were removed, with only traces of paint remaining as the race began on time.
Berlin mayor Kai Wegner started the race by pressing a red buzzer, with the organisers feeling the traditional starting pistol was inappropriate in light of the ongoing conflict in Ukraine.
