The 19-year-old four-time Paralympic champion finished in a time of three minutes 4.07 seconds, beating her old time by 0.34 seconds.
“It was a tough race but I’m over the moon to break the world record,” she told BBC Sport.
Sascha Kindred beat his European record as he won gold in the men’s event.
The 36-year-old finished in 2:40.82 – improving on the 2:41.50 he set to win silver in the event at London 2012.
“To get a personal best in my best event – the one I train for – at the age of 36 – I can’t ask for much more,” he said.
And there was joy for Claire Cashmore who finished strongly to tie for gold in the SB8 100m breaststroke with Russian rival Olesya Vladykina, who had beaten the Briton at London 2012 and last year’s World Championships.
It followed Andrew Mullen’s second gold in the space of 24 hours after the 17-year-old Glaswegian followed up his S5 butterfly title on Wednesday night with the SM5 medley crown on Thursday morning.
“From having no international golds in three years to two in the space of 24 hours is quite amazing,” he admitted.
Simmonds, who was beaten into silver in the S6 50m freestyle on Wednesday, was back to winning ways in spectacular fashion.
“I knew I was on course for a world record after the opening butterfly leg so I just wanted to go as fast as I could after that,” she added.
“Every race means a lot to me and it is great for me to push myself. I gave it everything and so happy it was a world record.”
It was a first individual gold medal for Cashmore, who made her GB debut at the Athens 2004 Paralympics, and the 26-year-old was thrilled after her battle with Vladykina.
“I saw she was ahead on the first length but I stuck to my race plan and that helped,” she admitted.
“So many times I’ve been distracted by her but now I know she is beatable and it feels like all of the hard work has paid off and I believe I can beat her now.”
GB continued to inch closer to their UK Sport medal target of 40-50 medals with silvers for Hannah Russell (S12 50m freestyle), Rob Welbourn (S10 400m freestyle) and Susie Rodgers (S7 100m backstroke), while James Crisp (SB8 breaststroke) and 15-year-old Alice Tai (S10 400m freestyle) won bronzes.
It means the team have 37 medals, including 17 golds, with three days of competition remaining.