Blackburn took the lead after 10 minutes through Adam Armstrong only to score a pair of own goals in a seven-minute span from Hayden Carter and Bradley Johnson.
The hosts doubled their lead on the hour mark when James Collins converted from the penalty spot and despite a late goal from Sam Gallagher, the Hatters hung on to see out a second season of second-tier football.
Story of the game
Luton were looking for a fast start in this must-win match and they had the first chance of the game when James Bree met Elliott Lee's cross inside of a minute, but he couldn't handle it and Blackburn cleared the danger.
The visitors then tested the Luton goal when Johnson's long-range effort was stopped by Simon Sluga. The visitors then opened the scoring when the Hatters failed to clear their lines, the ball falling to Armstrong and beat goalkeeper Simon Sluga from inside the six-yard box.
The hosts attempted to hit back straightaway. Harry Cornick looped Bree's corner onto the roof of the crossbar and the former Bournemouth man turned provider for Collins, but he sailed his effort over the bar.
On 27 minutes, Luton were level. Bree's free kick was sent into a dangerous area by Luke Berry and Carter accidentally deflected past Christian Walton into his own net. Remarkably, Blackburn scored a second own goal with Bree again the provider from a corner and Johnson seeing the ball ricochet off his shin and into his own net.
Bree was again at the heart of the action early in the second half, this time in his own end as he cleared Ben Brereton's cross that had flashed across the face of goal. The Luton lead was then doubled in the 60th minute.
Cornick was brought down after being clipped in the penalty area by Jacob Davenport and Collins stepped up and fired his shot down the middle, beating Walton to make it 3-1 to the hosts.
Joe Rothwell bent a free kick over Sluga's bar, but Tony Mowbray's men set up a nervy finish when Darragh Lenihan's diagonal ball was knocked down by Danny Graham and Gallagher flicked his shot past Sluga into the top corner from close range for his second goal in as many games.
The visitors nearly equalized a minute later when John Buckley's volley was just sent wide by captain Sonny Bradley. On 84 minutes, Lee fired wide and that turned out to be the last real chance for Blackburn as they were unable to find an equalizer and the Hatters had stayed up after being ten points from safety in February.
Man of the match: The entire Luton team
It might be unusual to name the entire team rather than one player (which would have to be Bree for his excellent service and critical clearance in the second half), but having spent virtually the entire season in the bottom three, to stay up on the final day of the season is nothing short of remarkable.
The hard work Nathan Jones and his side put in to dig themselves out of what seemed to be a hopeless situation is something that should be admired and the Hatters have fully earned another season in the Championship.
Luton got lucky, but teams that are playing well get those breaks
Perhaps it was no coincidence that Luton were the beneficiaries of two own goals. Teams that are in form often receive that slice of luck needed to achieve their desired result. After all, if the Hatters hadn't beaten Huddersfield Town and Hull City, they wouldn't have been in position to take advantage of the gifts they received.