Joshua, 34, floored the former UFC champion in the first round and early in the second.
A dazed Ngannou rose to his feet in Riyadh but was stunned by an explosive and formidable right moments later as the referee halted the contest.
The 37-year-old appeared to be out before he even hit the canvas and required medical treatment.
Victory is two-time world champion Joshua’s fourth in 11 months, and keeps alive his ambition of recapturing a world title.
Eddie Hearn called for Joshua, who he has promoted throughout the heavyweight’s pro career, to face the winner of Tyson Fury and Oleksandr Usyk.
The pair will fight to become the undisputed heavyweight champion in May, with a rematch later in the year.