Jackson, second in the 100m final, ran a brilliant bend, was two meters clear coming into the home straight and tore to the finish to win by a street. She crossed the line with a totally expressionless face as if she expected nothing else.
Jackson's time beat her previous best of 21.45 - the championship record she set winning in Eugene last year. It also edged her closer to the late Florence Griffith-Joyner’s 21.34 world record from the 1988 Olympics.
Gabby Thomas, who came to Budapest as the fastest in the world this year with the 21.60 that won the American trials, ran an excellent race to take silver in 21.81, but was not in the same picture as the champion.
Fellow American Sha'Carri Richardson claimed bronze with a personal best 21.92 running in the same lane nine from where she won gold in the 100m on Monday.
"I feel like I am a living testimony that you can create something if you really want it and never give up," said Jackson.
"Yesterday I ran the curve a little bit conservative. I think I did pretty good tonight - 21.41 is a time I cannot complain about.
"Even if I was pretty close to the world record it was not the thing on my mind when I ran. I will continue to work and I hope I can maintain at least this level and we will see if the world record will come.
"I wrote a time on my bib and it was a fast time - 21.2-something. Then I wrote beside it 21.40 for tonight and I got close to that. As for the world record - I'm close, I'm close, I'm getting there."
Record holder
Griffith-Joyner's mark set when testing was in its infancy is widely considered to have been fueled by performance-enhancing drugs but Jackson refused to accept it was tainted.
When asked if she considered herself the "real" record holder, she said: "I won't question a world record. If a person hasn’t failed a test it is the world record. I am the championship record holder. I am not the world record holder."
Thomas said: "I knew that I was coming into the final hot so that was to my advantage but it was such a fast race.
"I couldn't believe it when I looked at the screen afterwards. I ran my race and I stayed composed so I am happy to come out with a silver."
Richardson described reaching the final of both sprints in her first global competition as "mission accomplished" but said "being able to win the 100m and get a medal in the 200m, that's a dream come true.
"The competition is only going to get hotter from here so I need to prepare myself for the Olympics. This week has been indescribable and I know there is better to come."
St Lucia’s Julien Alfred was fourth in 22.05 while Briton Daryll Neita ran a second personal best in two days of 22.16 for fifth.
All the medalists are expected to share the track one more time after Jamaica and the United States qualified for Saturday's 4x100m relay final earlier on Friday.