Winner of the race in 2011 but beaten into third when an odds-on favourite 12 months ago, the nine-year-old was well supported prior to the off and sent off favourite.
Supporters of the Willie Mullins-trained gelding would have been worried at halfway as Walsh was already getting lower in the saddle.
But he began to pick up coming down the hill and was in the lead soon after jumping the second-last.
Hurricane Fly jumped the final flight smoothly and dug deep on the run-in to score by two and a half lengths.
Last year's winner Rock On Ruby was second, with Countrywide Flame third.
Walsh said: "I can't say I was overly confident - from the word 'go' he didn't travel as well as he can.
"He's an unbelievably big heart for a small horse."
Hurricane Fly was bidding to become the first horse to regain the Champion Hurdle since Comedy Of Errors in 1975 and although plenty were keen to take him on in the days leading up to the race, the money came for him prior to the off.
This year he arrived at Cheltenham with three runs already under his belt this season, with Mullins insisting he was far happier with his stable star than 12 months ago.
But reminiscent of last year, he appeared to be struggling to go the gallop early on before coming back on the bridle coming down the hill.
Last year's champion Rock On Ruby ran a tremendous race in defeat, having cut out much of the running in first-time blinkers.
Countrywide Flame, last season's Triumph Hurdle hero, similarly ran a stormer for North Yorkshire trainer John Quinn.
Walsh said: "He made a mistake or two, but he's as tough as nails.
"I was in front a good two furlongs too soon.
"He pinged the last and I'm glad he got it back to show everyone he's a true champion hurdler."