McIlroy delivered all the right shots in the playoff, smashing driver down the fairway and hitting 4-iron in to 25 feet on the par-5 closing hole at Sheshan International to set up a two-putt birdie.
Schauffele, who birdied the 18th in regulation to force a playoff, had to lay up from the rough near a bunker, and his 12-foot birdie putt stayed just right of the hole.
McIlroy won for the fourth time this year. It was his third World Golf Championships title, and his first since the Match Play at Harding Park in 2015.
McIlroy played bogey-free over the last 39 holes and closed with a 4-under 68, taking trouble out of play down the stretch because he had the lead.
"Bogey-free on the weekend. I thought it would be enough to get the job done," McIlroy said.
Schauffele turned in a bold performance in his bid to become the first back-to-back winner of the HSBC Champions. He spent all week battling remnants of the flu, but started the final round 2 shots behind and never let McIlroy feel in control.
Two shots behind with four holes to play, Schauffele birdied two of the last four for a 66, two-putting from the front of the green to a pin toward the back on the 18th in regulation, calmly making the 5-footer to force overtime at Sheshan for the second straight year.
"You have to give credit to Xander," McIlroy said. "He's been battling the flu, and he played unbelievably well."
They finished at 19-under 269.
McIlroy moves a little closer to Brooks Koepka at No. 1 in the world with one tournament left, the DP World Tour Championship in Dubai the week before Thanksgiving to close out what already has been a special year. This is the fourth time McIlroy has won at least four times in a season.
Louis Oosthuizen birdied his opening two holes to set the early target, and he was tied with McIlroy until a tee shot into the trees on the ninth and a chip that didn't reach the fairway, leading to bogey. Oosthuizen made another bogey on the 11th that effectively dropped him out of the race.
McIlroy took a 2-shot lead with a bit of good fortune on the par-5 14th. His second shot landed near the back pin but bounced hard into thick rough. His chip looked to be running some 10 feet by the hole, except that it hit the pin and left him a short birdie putt.
More good fortune awaited on the 18th hole. One shot ahead of Schauffele, who was in the fairway, McIlroy went right and watched the ball bound off the hill and settle in thick rough a foot from the red hazard line. He punched out to the fairway, but his approach was 25 feet short and he missed a birdie putt for the win.
Phil Mickelson closed with a 68 and tied for 28th. With Shugo Imahira finishing second on the Japan Golf Tour, Mickelson will drop out of the top 50 in the world for the first time since Nov. 28, 1993, the longest consecutive streak in the top 50 since the Official World Golf Ranking began in 1986.
"It was a good run," Mickelson said. "But I'll be back."
Patrick Reed made one last audition as a captain's pick for the Presidents Cup with a 66 to tie for eighth. He has finished among the top 20 in 10 of his past 13 starts, including a victory in the FedEx Cup playoffs.
U.S. captain Tiger Woods announces his selections Thursday.
Sungjae Im, bidding for one of four picks by Ernie Els for the International team, had a 72 and tied for 11th.
McIlroy now gets a two-week break before wrapping up his year in Dubai.
"I want to finish the year on a high note," he said.