The stage was a challenging 186km ride from Viareggio to Castelnovo ne' Monti which had the most punishing sector on the Giro this year - the 13.7km Alpe San Pellegrino climb.
EF Education-EasyPost's Carapaz, who turns 32 next week, had a disappointing time trial on Tuesday when he finished nearly three minutes behind winner Dutchman Daan Hoole, but he made it count on the unforgiving mountain stage.
"This stage being a quite difficult one and many people suffering since the first climb, I had good legs and I caught the opportunity to attack at the indicated moment," Carapaz said.
"I wasn't disappointed yesterday. I know time-trialing isn't my forte. I saved everything I could. It's something special and emotional to win this stage because it comes after a lot of work and I wanted to please my family, my friends."
Although a breakaway group led by nearly a minute with 15km to go, Carapaz left the peloton behind and attacked to reel them in, overtaking them with nine km left.
The Ecuadorean powered to the finish with a lead of 18 seconds in the final kilometre while Del Toro led the chasers, beating Lidl–Trek's Giulio Ciccone who completed the podium.
Del Toro's UAE Team Emirates team mate Juan Ayuso is second in the general classification, 31 seconds behind with Antonio Tiberi of Bahrain Victorious is more than a minute back.
XDS-Astana's Lorenzo Fortunato continued to dominate on the mountains to retain the blue jersey, when he claimed maximum points in two of the three categorised climbs on stage 11 and built a lead of 102 points.
But the day belonged to Carapaz, who moved up from ninth to sixth in the general classification, to sit a minute and 56 seconds behind Del Toro.
"I'll try till the end to win the Giro," Carapaz added. "I won't stop fighting until we arrive in Rome."
Thursday's stage 12 is a flat 172km ride from Modena to Viadana.