After qualifying in fourth position, the defending Olympic champion rose to the top of the leaderboard with a 26.58 run.
He watched on as American Bryon Wilson (26.08) failed to better to that before Canadian Alexandre Bilodeau posted a 26.75.
Top-ranked qualifier Frenchman Guilbaut Colbas could only produce a 25.74 to finish in sixth place as host nation Canada claimed its first gold medal of the Games.
In the end it came down to the times on the runs with little to separate the two on turns and air.
Begg-Smith underlined his status as the best turner in the world with a 14.2 compared to Bilodeau’s 14.1, while the Canadian narrowly edged out the Aussie in the air category (5.44 to 5.43).
But Bilodeau’s time of 23.17 seconds was substantially quicker than Begg-Smith’s 23.72 and that was the difference between gold and silver.
Coach Steve Desovich paid tribute to Begg-Smith after coming back from a knee injury last year.
"You have to remember that he was on the surgeons table having his knee repaired just a short time ago," he said.
"It was a brilliant run – he pulled out his best performance in the final and I’m proud of what he did."
Bilodeau’s win ends an unfortunate hoodoo for Canada, who hosted the 1976 Olympics in Montreal and the 1998 Winter Olympics in Calgary without winning a gold medal in either Games.
"The party is just starting for Canada. There are so many good golds to come and I’ll try to keep a bit of voice for them," Bilodeau said.
"It is too good to be true and I don’t think I realise yet (what it means)."
"At the top (of the course) I said ‘I’m ready’. I went out and I knew what to do."
Bilodeau dedicated his gold to watching older brother Frederic, who suffers from cerebral palsy.
"My brother is my inspiration," he added.
"He has grown up with a handicap that puts everything into perspective."
Skiing: Begg-Smith seals top ranking