Palou wins seventh of season at IndyCar Farm to Finish 275
The pole-sitter and Indianapolis 500 champion collected his 18th career IndyCar triumph in 93 starts after 275 laps around the 0.894-mile (1.43km) Iowa Speedway oval.
"It has been an unbelievable day, unbelievable weekend but more than anything an incredible year for us," Palou said.
"I cannot really believe it, honestly, and winning here is super special. I struggled on short ovals for so long. Super happy. Another win. Seven wins in one year. It's insane."
It was only his second career oval triumph after winning at Indy in May.
The event completed a double-header weekend in Newton, Iowa, with race one going to Mexico's Pato O'Ward on Saturday.
New Zealand's Dixon finished second on Sunday followed by compatriot Marcus Armstrong, who matched his best career IndyCar finish, then American David Malukas and O'Ward.
It was Dixon's 14th top-five finish at Iowa without a victory.
"We weren't too sure how it was going to go," Dixon said. "Everybody did a great job to basically throw the kitchen sink at it."
Palou, with 515 season points, boosted his lead over O'Ward from 105 to 129 points with Dixon 173 adrift in third after 12 races as the Spaniard tries to capture a fourth crown in five campaigns.
American Josef Newgarden, Saturday's runner-up and is a six-time race winner at Iowa, finished 10th after twice pitting with the lead only to have a caution flag moments later send him to the back of the lead lap.
Palou grabbed the lead at the start but Newgarden overtook him and seized first place on lap 66.
Newgarden went into the pits on lap 130 for fuel but moments later Sweden's Marcus Ericsson crashed in turn four, allowing rivals to make pit stops under caution as Newgarden cycled back.
Palou returned to the track in the lead with Malukas second and O'Ward third at the restart with Newgarden 11th.
Fast-charging Newgarden clawed his way back, passing Malukas with 40 laps remaining and overtaking Palou five laps later to reclaim the lead.
Newgarden then pitted to refuel just as American Colton Herta crashed to bring out a caution flag with Palou pitting and staying in the lead and Newgarden fading to ninth.
Palou sped away on a restart with 11 laps remaining and held off Dixon to the end.
The next IndyCar race will be next Sunday at Toronto.