Jockey Robert Thornton had earlier won the Supreme Novices' Hurdle
Katchit saw off Osana and Punjabi to win the Champion Hurdle, the main race of Cheltenham Festival's opening day.
The Alan King-trained five-year-old, who started at 10-1, beat Osana by a length, while Punjabi held off 2007 winner Sublimity for third.
Sizing Europe, the pre-race favourite from Ireland, was well beaten as English trainers secured a 1-2-3.
"It's unbelievable. He's a little terrier and is so tough it's unreal," said Katchit's jockey Robert Thornton.
Katchit, winner of the Triumph Hurdle at Cheltenham last year, was the first five-year-old to win the Champion Hurdle since 1985.
Although lacking in size, he proved his tenacity and once he jumped the last in contention, he dug deep to claim victory from Osana who had looked beaten two from home.
King, who also has hopes for Voy Por Ustedes in Wednesday's Queen Mother Champion Chase, was left speechless after his charge's victory by a length.
"I'm totally shocked. I've been so relaxed all day because I really didn't think he could win it," he told BBC Radio 5 Live.
"I believed that if he finished in the first four, I would be thrilled.
"I thought the ground had gone against him and five-year-olds don't normally do well in this race."
It was the second win of the day for Thornton following his success on Captain Cee Bee, a 17-2 shot, in the Supreme Novices' Hurdle.
Denis O'Regan celebrates Tidal Bay's Arkle Trophy victory
The horse, named after trainer Eddie Harty's grandfather CB Harty, made progress down the hill and then moved up alongside Binocular, ridden by Tony McCoy, turning for home.
But it was Captain Cee Bee who won the battle of the horses who are both owned by legendary gambler JP McManus to triumph by two lengths.
In the Arkle Trophy there was a surprise as the favourite Noland, trained by Paul Nicholls, was well beaten into third by Tidal Bay.
Tidal Bay, trained by Howard Johnson and ridden by Denis O'Regan, had been well-fancied for this race before being beaten at Doncaster in his last run but he showed a welcome return to form with a 13-length win.
1. Katchit (R Thornton) 10-1
2. Osana (Tom Scudamore) 9-2
3. Punjabi (BJ Geraghty) 25-1
1. Tidal Bay (Denis O'Regan) 6-1
2. Kruguyrova (A P McCoy) 9-1
3. Noland (R Walsh) 7-4 Fav
Supreme Novices' Hurdle
1. Captain Cee Bee (R Thornton) 17-2
2. Binocular (A P McCoy) 8-1 Co Fav
3. Snap Tie (R Johnson) 20-1