Oliveira and Chandler headlined the UFC PPV at the Toyota Center in Houston, Texas, after Nate Diaz vs Leon Edwards was postponed until UFC 263 in June.
UFC president Dana White confirmed the lightweight title was on the line after Khabib Nurmagomedov relinquished the championship following his shock retirement.
Chandler, 35, came out on the offensive in the opening round against Oliveira, but the UFC fighter was dropped with a superb calf kick.
However, the former three-time Bellator lightweight champ pushed on and landed a huge left hook on Oliveira, which forced his opponent to shoot for a takedown.
Oliveira, 31, managed to escape a guillotine choke and turned the tide of the fight back in his favour as he climbed onto Chandler's back.
Chandler scrambled to pull Oliveira off his back with a powerful slam to the octagon mat, only to find the newly-crowned lightweight champ tightening his lock.
The 35-year-old American star then managed to break out of the submission before landing a massive left hand to rock Oliveira during an epic first round.
Oliveira survived the first round and opened the second round in sensational fashion with a pair of left hooks to Chandler.
The 31-year-old Brazilian star wasted no time in carrying through with a flurry of strikes to defeat Chandler at UFC 262 and secure the lightweight strap.
Chandler, who made his UFC debut with a win against Dan Hooker at UFC 257 in January, vowed that he would "wear that UFC strap within the next 12 months."
Speaking after the fight, Iron said: "I think we saw one of the toughest dudes on the planet come back from adversity.
"Charles Oliveira is the real deal and I take nothing away from him. I will be back.
"I promise you I'm gonna wear that UFC strap within the next 12 months. This is a great opportunity. I thank the UFC for this opportunity.
"Charles Oliveira showed how he was a consummate professional and he showed up for the last 10, 11 years here inside the UFC octagon.
"We'll get this one back. We're gonna run this one back eventually."
Featured Image Credit: UFC/BT Sport