Knox closed the tournament with a magnificent round of 66 at the fabulous Ballyliffin Golf Club (Watch Course VLOG), which turned out to be a wonderful venue.
Knox, whose only previous European Tour win came at the WGC-HSBC Champions in 2015, drained a putt from around 40 feet on the 72nd hole to complete a round of 66 and join Fox at 14 under.
The New Zealander had that putt for the title but missed on the high side and the pair were left to go back up the last.
When Knox couldn't birdie the favourable par-five 17th, Fox struck, hitting the green in two and safely two-putting to take a one-stroke lead into the final hole.
Then in the play-off he had an nearly similar putt to extend the play-off but his effort lipped out and Russell Knox was able to celebrate a first Irish Open win.More news: Officer off beat after dispute over Puerto Rican shirt
It also offers some redemption on Irish soil after the 33-year-old finished second to Rory McIlroy at this event in 2016. "On that last putt I said to my caddie, "I've already made this putt, so it can't be too difficult".
"I had the apple in my hand... and I just saw someone at the last minute", said Knox.
"I'm just lucky to win one of these massive events, so thank you very much to Rolex".
"But I was able to hit a good shot and get on the green, which I was thrilled with".
While disappointed at not winning Fox still earns almost $1.5 million for finishing runner-up and will tee off in the third major of the year the Open at Carnoustie in two weeks time.More news: Harry and Meghan due in Dublin for two-day visit
South Africa's Erik van Rooyen began the day with a four-shot lead but struggled to a 74 to finish alongside Rahm on 12 under.
"He also sent me a couple of videos of my body language after all the missed putts this week", laughed the four-time major victor.
"To make that team, you have to win tournaments".
The victory earned Knox a prize of nearly £890,000 and his first win since the Travelers Championship in the USA in 2016 as he moves up to fifth place in the Race to Dubai standings. I've done it before in the USA on the last hole, 12 feet. But I hit some great shots, and the putter was just hot.More news: Pakistan maintain top position in ICC T20I ranking
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