The second row for Sunday's main race will be filled by Piastri's teammate Lando Norris and world champion Max Verstappen of Red Bull.
Hamilton will start in fifth after taking his maiden victory for Ferrari in the morning sprint in Shanghai.
Alongside him on the third row will be teammate Charles Leclerc with Isack Hadjar, Kimi Antonelli, Yuki Tsunoda and Alex Albon completing the top 10.
"I found a lot of pace in Q3," said the Australian Piastri.
"The laps were a little bit scruffy but I'm just pumped to be on pole."
Piastri, who was second in the sprint, said it would be important to get away in front at the start of Sunday's 56-lap race where preserving tyres could be a key factor.
"I want to make sure I keep the clean air. I was pretty happy after the sprint," he said.
"I feel like we learned a lot and I'm looking forward to putting that into use tomorrow."
Russell was ecstatic to get on the front row alongside Piastri.
"Feels incredible to be honest," said the Englishman.
"Did something totally different on that last lap and it all came together."
Norris finally found some pace after coming eighth in the sprint.
"I'm always disappointed if I'm not on pole but Oscar deserves it today," said Norris, who won the season-opener in Melbourne last week.
Rookie Liam Lawson continued his terrible start to life at Red Bull after crashing in Melbourne and coming last in sprint qualifying.
The New Zealander failed to hook up his qualifying tyres and trailed in 20th on the time sheets and will start from the back of the grid for a second successive time.
"It's just really tough, honestly," said a disappointed Lawson. "I just need to get on top of it."
Esteban Ocon was 11th and joined by Nico Hulkenberg, Fernando Alonso, Lance Stroll and 15th fastest Carlos Sainz in not making the top 10 shootout from Q2.
Also eliminated from Q1 were Pierre Gasly and Lawson's fellow rookies Oliver Bearman, Jack Doohan and Gabriel Bortoleto.