Simona Halep needed to reach at least the last eight and go further than world number two Caroline Wozniacki to retain the top-ranking going into the French Open.
Venus Williams showed no signs of fatigue to power home 5-7, 6-1, 6-2 in two hours and 19 minutes.
Venus Williams, who at 37 is the oldest player in the women's draw, has played sparingly this year but is just beginning to step up her game
It was the first meeting between the two Williams sisters since they clashed in the final of the 2017 Australian Open.
Venus and Serena have faced each other 28 times in their legendary careers and they are now meeting in Serena's first tournament back on the WTA Tour since she beat Venus 6-4, 6-4 in the 2017 Australian Open final.
It was Serena Williams' first competitive match since winning her 23rd major at the 2017 Australian Open.
Venus Williams' win came in her 1,000th career match and her 22nd singles appearance in a tournament she first played in 1999.
Serena Williams had initially targeted last month's Australian Open but abandoned that goal after declaring she was not "where I personally want to be."
The fifth seed and last year's finalist was shocked 6-3, 7-5 in the first round by the world number 78 in just under two hours on Rod Laver Arena.
Police concluded neither driver was at fault and no charges would be filed in the collision which took place in a busy intersection in Palm Beach Gardens, the South Florida Sun-Sentinel newspaper reported on Wednesday.
Serena Williams and husband Alexis Ohanian took to Instagram to share some intimate moments of their big day.
Serena Williams and Alexis Ohanian had announced their engagement in December after meeting in 2015 in Rome.
Caroline Wozniacki had won just one set from seven harrowing defeats to Venus Williams.
Venus Williams, a seven-time major champion, was seeking her first grand slam title since 2008
US ninth seed Williams, seeking her third US Open crown, advanced to a Thursday matchup for a spot in Saturday's final against 83rd-ranked compatriot Sloane Stephens.
Maria Sharapova is expected to jump from 146th to around 100th in the world rankings.
Another highlight during Venus' match was her powerful serve that left a ball boy in quite a bit of pain. Funnily, Roger Federer decided make the boy famous on social media by sharing a gif of the incident.
Muguruza overwhelmed Williams with a supreme display of power hitting in 77 minutes on Centre Court to become only the second Spanish woman to win Wimbledon.