Danielle Scott of Australia took the silver, while the bronze went to Xu's compatriot Shao Qi.
Xu, 35, is a five-time Olympian with 35 World Cup victories, a record for aerials, and the current World Cup rankings leader. The International Ski and Snowboard Federation has described her as the greatest aerials skier of all time.
As well as gold at Beijing 2022, she won silver in mixed team aerials at those Games and aerials silver at Sochi 2014.
"I have been practising sports for 31 years ... I have always been confident, optimistic, and with this fighting spirit. My coach and my team all know that Mengtao usually thinks that being number two is not a good performance," she said.
The top-two finish from Xu and Scott, who is also 35, was remarkable in a discipline that normally favours younger athletes.
"Well, age is only a number, and Mengtao and I, we're both 35, so it doesn't matter," the Australian said.
In Wednesday's final at the alpine resort of Livigno, Xu towered over rivals, with a 112.90 score with her last jump, compared to 102.17 for Scott and 101.90 for Shao.
Xu was in tears as she held her arms up in celebration, holding the Chinese flag.
Scott, a four-time Olympian who is also 35, had said she was gunning for gold, but the Australian was no match for her Chinese rival.
Shao, 24, was at her second Olympics, winning her first medal.
Aerials is a gravity-defying discipline in which athletes jump off a near-vertical ramp, launching themselves up to 20 meters in the air and performing complex aerobatics before landing on a steep slope.
During the exercise, they reach speeds of more than 60 kilometres per hour. Performances are judged on height, distance, style, degree of difficulty and landing, with a maximum score of 150.
The discipline has been part of the Games since Lillehammer 1994.