I have just been to heaven, and it would be unfair of me not to share with you the impact of what I saw there. It was about 7in tall and sparkled like a night sky with the black bits taken out, leaving only a concentrate of stars, and their twinkle. Its top was rounded, though not in any conventional way, but along a subtle undulation of the sort that nature only arrives at after billions of years of minute improvement. There were three large holes in it, and a cave filled with particularly fierce spangling where the nose usually goes. I did not gibber or dribble in its presence, but that’s only because I’m a highly experienced art critic, trained never to reveal his full emotions. Others will be tempted to faint with ecstasy at the sight of this thing, and nobody should blame them for it, because we are dealing here with a cosmic wonder: Damien Hirst’s diamond-encrusted skull.

For the Love of God, to give this outrageous display of creative indulgence its proper and typically Damienesque title, is as gorgeous a gewgaw as you will ever see. You will be able to do that in a special viewing chamber at White Cube in Mayfair, where Hirst’s new show has just opened. But I got to see it a week ago – na-na-na-na-na – in Hatton Garden, before it emerged from the high-security vault in which it has been living. I picked it up. I held it. I turned it upside down and examined its back view. And let me tell you, I’ve done many exciting things in my long watch as an art critic, but I’ve never done anything quite as goosebump-inducing as going one-on-one with this fabulously unnerving masterpiece in diamonds.

As you know, diamonds are diamonds for a reason.

People blow up mountains to get at them, invade other countries for them and involve them prominently in key human ceremonies, from marriages to coronations, because the damn things deliver a miraculous visual punch. Get yourself a really good one of two or three carats, and it makes your engagement to a beloved feel properly marked and special. Now imagine that impact magnified a thousand times. Imagine as many diamonds as you can imagine, crammed together and sparkling at once in different directions. That’s what is going on here.

Thus, the difference between a nice engagement ring and Hirst’s skull equates to something like the difference between a banger going off and a nuclear explosion. Here are some statistics to savour. The skull’s casing is made wholly of platinum. Its entire surface, including all the undersides, is studded with 8,601 flawless diamonds of the highest possible clarity, adding up to 1,200 carats of jewelled perfection. In its forehead, there is a ring of 14 exceptional diamonds, as perfect in clarity as the rest, but bigger, ranging from three to 12 carats. And in the middle of this magic ring is the pièce de résistance, the diamond with the knockout punch, a 52-carat fancy pink from Angola: flawless, cut in a pear-drop shape, and already acknowledged as among the most beautiful stones ever mined. So large is it that it has its own name: the Skull Star Diamond.

The people who actually made the skull, the famous Bent-ley & Skinner from Bond Street, jewellers to the crown, have never before attempted anything on this scale. It is, they tell me, the most ambitious piece of British jewellery since the crown jewels. But all that would not be enough, and you would not be reading about it here – you would be reading about it on the front page of Jeweller’s Weekly – were we dealing only with a remarkable piece of gold-smithery. But we also have here a work of art of rare heft and cleverness: perhaps Hirst’s masterpiece. Certainly, his career-long rumination upon the paradoxes of mortality has never found a more spectacular expression.

The skull from which the diamond-encrusted wonder was cast belonged to a small Georgian man of about 35. Hirst, in a lovely and typical touch, has left his anonymous benefactor’s teeth intact, giving the beautiful diamond mask a dark, Damienesque charge. One of the teeth is missing. And this small human imperfection throws itself brusquely onto the scales opposite the diamonds and the platinum, and appears immediately to outweigh them. Artists have long been drawn to skulls as symbols of mortality. But surely nobody has made the point as cheekily as this before. Hirst’s little touches – the missing tooth, the uselessly encrusted undersides – give the work a splendidly insouciant air. No expense has been spared to point out the worthlessness of human existence. And as Hirst is a multimillionaire now, whose shopping lists fetch serious money at auction, the diamond skull’s cheeky insistence on the transience of earthly riches is as pertinent to its creator as it is to every fabulously rich collector in history. If Hirst weren’t as rich as he is, he could not have afforded to make this piece. And yet the chief point it makes is that riches mean nothing. Brilliant.

The skull is part of a riotously ambitious two-part extravaganza divided up between the Mayfair and Hoxton branches of White Cube. The shared display records a spirited return to form by Hirst. His auction prices may have soared in recent years, but his levels of invention and inspiration have clearly been sagging. His last White Cube show was a ponderous affair, straining all too obviously for big meanings. He works best when there is a smile on his face, and it is this rediscovery of insouciance and cheek that makes the new display so effective.

Thus, a hilarious piece in Hoxton called The Adoration shows three skinned sheep down on their knees in the praying position as they worship a newborn baby in an incubator. It’s a nativity scene, but one that suits Hoxton in 2007: a miraculous birth reflected in the distorted fairground mirror of Hirst’s demented imagination. The baby is made of solid silver, by the way, and provides more proof, should more proof be needed after the skull, that living in Mexico for part of the year has fertilised Hirst’s imagination with some weird and effective compost.

Another of the interesting things Hirst does here is to revisit the sites of his former achievements, notably the formaldehyde pieces with which he made his name. The Mayfair show even has a new shark piece in it, featuring, in this case, a spectacular divided shark, down whose middle you can walk. There is also a cow with two heads, and a charming black sheep – called Black Sheep, of course – which clearly relates to the famously fluffy white one of years ago. Personally, I am delighted that Hirst has chosen to continue strolling down this particular avenue. The formaldehyde pieces always struck me as unfinished business. And just as Cézanne needed to keep repainting his apple to make progress, so Hirst needs to keep preserving his beasts.

The show also features a scary array of what I know to be photorealist pictures, but which Hirst insists on calling his Fact Paintings. They record the birth of his baby boy, by caesarean section, and range from a set of moist and mucky ones detailing the actual operation in Mayfair to some loving scenes in Hoxton, set after the event, in which Hirst and his girlfriend proudly display their newborn boy to the world in that showy family fashion invented by Joseph and Mary. Outrageous, but charming.

All this is effectively and delicately done. But this wouldn’t be a Damien Hirst show if it did not seek also to go completely over the top, and that effort is led here by a set of gigantic red paintings inspired by biopsies of various cancers. Each cancer gets a different gory whopper to itself. Painted with what appears to be bucketloads of coagulated blood, and covered also with scalpels and creepy bits of human hair, the Biopsy Paintings make the mistake of trying to nail us with a water cannon instead of doing what cancer itself does: sneaking in when we are not looking.

Damien Hirst: Beyond Belief, at White Cube, Hoxton Square, N1, and Mason’s Yard, SW1, until July 7

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