The 18-year-old from Cairo, the youngest player in the tournament, beat France's Geoffrey Demont in the quarter-finals and German Andre Haschker in the semis - both unseeded - before facing surprise opponent Lucas Serme, also a non-seed, in the final.
Frenchman Serme, a 20-year-old from Creteil studying at University in Bristol in the UK, despatched England's No3 seed Jaymie Haycocks in the opening round and claimed his biggest scalp in the semi-finals where he ousted second-seeded Dutchman Dylan Bennett.
And outsider Serme opened up a 2/1 lead over the Egyptian in the final as he looked to be heading towards his third upset in the event.
But Ali Fathi raised his game to defeat Serme 11-5, 9-11, 7-11, 11-4, 11-6 to become the first Egyptian winner of the prestigious title since 2006.
"It was a tough match," said the Egyptian's coach Philip Whitlock. "But Karim got off to a good start in the fifth and stayed in front all of that game."
Ali Fathi's success, his second Tour title of the year, marked a notable double triumph for former England international Whitlock who not only coaches the Egyptian but also his daughter Emily Whitlock, winner of the women's Swiss Open trophy.
RESULTS: PSA Challenger 5 Swiss Open, Geneva, Switzerland
 Bradley Hindle (MLT) bt [Q] Norman Junge (GER) 11-4, 11-3, 12-10
Andre Haschker (GER) bt [Q] Jerome Dadot (FRA) 11-8, 11-2, 11-4
Geoffrey Demont (FRA) bt Jonas Daehler (SUI) 12-10, 11-2, 11-2
 Karim Ali Fathi (EGY) bt [Q] Carsten Schoor (GER) 11-8, 11-2, 11-4
Lucas Serme (FRA) bt  Jaymie Haycocks (ENG) 10-12, 11-8, 11-8, 11-1
Sebastiaan Weenink (NED) bt Antoine-Camille Petrucci (FRA) 13-11, 1-11, 11-7, 6-11, 11-6
Leandro Romiglio Fernandez (ESP) bt [Q] James Simpson (ENG) 11-5, 11-6, 11-7
 Dylan Bennett (NED) bt Cedric Kuchen (SUI) 11-5, 11-8, 11-1
Andre Haschker (GER) bt  Bradley Hindle (MLT) 8-11, 11-6 ret.
 Karim Ali Fathi (EGY) bt Geoffrey Demont (FRA) 11-5, 11-4, 11-2
Lucas Serme (FRA) bt Sebastiaan Weenink (NED) 11-6, 12-10, 11-8
 Dylan Bennett (NED) bt Leandro Romiglio Fernandez (ESP) 7-11, 11-5, 8-11, 11-7, 11-9
 Karim Ali Fathi (EGY) bt Andre Haschker (GER) 11-6, 11-4, 11-6
Lucas Serme (FRA) bt  Dylan Bennett (NED) 11-9, 14-12, 11-8
 Karim Ali Fathi (EGY) bt Lucas Serme (FRA) 11-5, 9-11, 7-11, 11-4, 11-6
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