Fiorente's win in front of 100,000 racegoers at Flemington on Tuesday, sealed Waterhouse's standing as one of Australia's greatest horse trainers.
It also gave Damien Oliver his third Melbourne Cup, two months after he returned to racing from serving a ban for betting on a rival horse in a race he was riding in in 2010.
Fiorente staged a thrilling duel with Red Cadeaux before gaining the upperhand at the 100m.
Mount Athos finished third.
Waterhouse's victory came after twice training the runner-up, Te Akau Nick in 1993 and Fiorente in last year's race.
It also confirmed Waterhouse as one of the most resilient figures in Australian racing.
She has been in the headlines since a public fall-out with high profile owner John Singleton and an ongoing battle with Sydney racing stewards.
Waterhouse trained most of Singleton's racehorses until the glamour mare More Joyous was beaten in the All Aged Stakes during the Sydney autumn racing carnival.
Singleton claimed Waterhouse's son, the bookmaker Tom Waterhouse, had told rugby league star Andrew Johns that More Joyous couldn't win the All Aged before the mare ran unplaced in the race.
Oliver, who won the race on Doriemus and Media Puzzle, brought Fiorente from midfield to stake his challenge at the 300m.
He said it was a privilege to win the race for Waterhouse.
"It's amazing, it's a dream come true," he said.
"I'm so rapt that I could be part of Gai's first one. She's done so much for racing and it's a great honour for me to help bring home her first one.
"Gai was one of the first people to get behind me when I came back and I can't thank her enough for helping me get going again and we have been a great team together."
Fiorente, who ran second to Green Moon in last year's race, started the $7 favourite with Red Cadeaux at $61 and Mount Athos going out at $13.
Irish stayer Simenon made a long run in the race and fought on bravely for fourth with Dandino taking fifth.
Caulfield Cup winner Fawkner was the first Australian-bred horse across the line, finishing sixth.
Waterhouse paid Oliver the ultimate compliment for his ride.
"He rode him a treat," she said.
"He got back to about 12th and it was quite a solidly run race and then he just kept tracking up and tracking up. He was just fantastic, it's a dream come true."
Fiorente beat Red Cadeaux by three quarters of a length with another 1-1/2 lengths to Mount Athos.
Ruscello, who led the field past the winning post for the first time, ran last.
French mare Verema failed to complete the course.
WHERE YOUR HORSE FINISHED IN THE MELBOURNE CUP:
2. Red Cadeaux
3. Mount Athos
8. Brown Panther
9. Super Cool
10. Voleuse de Coeurs
13. Sea Moon
14. Royal Empire
18. Masked Marvel
19. Dear Demi
21. Green Moon
22. Tres Blue