Nadal began the year in India, where he was comprehensively beaten by Mikhail Youzhny in the final of the Chennai Open. Nadal then reached the semifinals of the Australian Open for the first time. Jo-Wilfried Tsonga defeated Nadal 6–2, 6–3, 6–2 in the semifinal of 2008 Australian Open. Tsonga's semifinal performance was characterized by his powerful and precise serve, finesse volleys, and aggressive baseline play; it was a performance that drew the Melbourne crowd to their feet. Tsonga did not face a break point until the third set, while breaking the Spaniard five times in the match. Nadal also reached the final of the Miami Masters for the second time.
During the spring clay-court season, Nadal won four singles titles and defeated Roger Federer in three finals. He beat Federer at the Masters Series Monte Carlo for the third straight year, capturing his open era record fourth consecutive title there. He won in straight sets, despite Federer's holding a 4–0 lead in the second set. Nadal then won his fourth consecutive title at the Open Sabadell Atlántico tournament in Barcelona. A few weeks later, Nadal won his first title at the Masters Series Hamburg, defeating Federer in the three-set final. He then won the French Open, becoming the fifth man in the open era to win a Grand Slam singles title without losing a set. He defeated Federer in the final for the third straight year, but this was the most lopsided of all their matches, as Nadal only lost four games and gave Federer his first bagel since 1999. This was Nadal's fourth consecutive French title, tying Björn Borg's all-time record. Nadal became the fourth male player during the open era to win the same Grand Slam singles tournament four consecutive years (the others being Borg, Pete Sampras, and Federer).
Nadal then played Federer in the final of Wimbledon for the third consecutive year, in the most anticipated match of their rivalry. Nadal entered the final on a 23-match winning streak, including his first career grass-court title at the Artois Championships staged at the Queen's Club in London prior to Wimbledon. Federer had won his record fifth grass-court title at the Gerry Weber Open in Halle, and then reached the Wimbledon final without losing a set. Unlike their previous two Wimbledon finals, though, Federer was not the prohibitive favorite, and many analysts picked Nadal to win. They played the longest (in terms of time on court, not in terms of numbers of games) final in Wimbledon history, and because of rain delays, Nadal won the fifth set 9–7 in near-darkness. The match was widely lauded as the greatest Wimbledon final ever, with some tennis critics even calling it the greatest match in tennis history. By winning his first Wimbledon title, Nadal became the third man in the open era to win both the French Open and Wimbledon in the same year, after Rod Laver in 1969 and Borg in 1978–80, (Federer later accomplished this the following year) as well as the second Spaniard to win Wimbledon. He also ended Federer's record streak of five consecutive Wimbledon titles and 65 straight wins on grass courts. This is also the first time that Nadal won two Grand Slams back-to-back.
After Wimbledon, Nadal extended his winning streak to a career-best 32 matches. He won his second Rogers Cup title in Toronto, and then made it into the semifinals of the Western & Southern Financial Group Masters in Cincinnati, Ohio. As a result, Nadal clinched the US Open Series and, combined with Federer's early-round losses in both of those tournaments, finally earned the world No. 1 ranking on 18 August, officially ending Federer's record four-and-a-half year reign at the top.
At the 2008 Beijing Olympics, Nadal defeated Novak Djoković of Serbia in the semifinals 6–4, 1–6, 6–4 and Fernando González of Chile in the final to win his first Olympic gold medal. Nadal became the first male player ranked in the top five to win the gold medal.
At the US Open, Nadal was the top-seeded player for the first time at a Grand Slam tournament. He did not lose a set during his first three matches, defeating qualifiers in the first and second rounds and Viktor Troicki in the third round. He then needed four sets to defeat both Sam Querrey in the fourth round and Mardy Fish in the quarterfinals. In the semifinals, he lost to eventual runner up, Andy Murray 6–2, 7–6(5), 4–6, 6–4. Later in the year in Madrid, Nadal helped Spain defeat the United States in the Davis Cup semifinals.
At the Mutua Madrileña Masters in Madrid, Nadal lost in the semifinals to Gilles Simon 3–6, 7–5, 7–6(6). However, his performance at the event guaranteed that he would become the first Spaniard during the open era to finish the year as the world No. 1. On October 24 at the Campoamor theatre in Oviedo, Spain, Nadal was given the Prince of Asturias Award for Sports, in recognition of his achievements in tennis. Two weeks after the Madrid Masters at the BNP Paribas Masters in France, Nadal reached the quarterfinals, where he faced Nikolay Davydenko. Nadal lost the first set 6–1, before retiring in the second with a knee injury. The following week, Nadal announced his withdrawal from the year-ending Tennis Masters Cup in Shanghai, citing tendinitis of the knee. On 10 November, Nadal withdrew from Spain's Davis Cup final against Argentina, as his knee injury had not healed completely.