Player-coach Jess Fishlock opened the scoring in first-half stoppage time, before striker Beverly Yanez sealed the win in the 72nd minute courtesy of a goalkeeping error from Gabrielle Dal Busco.
It was the second grand final heartbreak for Glory, who lost the title decider to Canberra in Perth two years ago.
City were undefeated last season on the way to winning the title in their maiden campaign.
But they did it much tougher this time around, with a six-match winless run during the middle of the season threatening their finals hopes.
The defending premiers eventually scraped into fourth spot, and they won their way into the decider with a 1-0 semi-final win over minor premiers Canberra.
City should have opened the scoring in the grand final after just 48 seconds, but Yanez let a free header on goal go begging after totally misjudging the bouncing ball.
Glory striker Sam Kerr was a constant threat during the opening 30 minutes as the home side asserted their dominance.
But City slowly worked their way into the contest, thanks largely to the influence of Fishlock through the midfield.
Fishlock set up numerous opportunities for her teammates and she scored after Glory's defence was broken open by a clever one-two play between Erika Tymrak and Yanez.
Fishlock almost did the splits as she thrust out her right leg to poke the ball home.
Kerr had an excellent chance to level the scores in the 69th minute, but her free header drifted agonisingly wide.
And just three minutes later it was as good as game over when a goalkeeping mistake gifted Yanez a goal.
Dal Busco should have punched the ball clear after Yanez's attempted cross flew goalward.
But her light contact with her hand wasn't enough to deflect the ball away far enough, with the ball instead sailing into the top of the net.