Actress Rachel Weisz and animated duo Wallace and Gromit were the night's British winners.
Weisz was named best supporting actress for her performance as an aid worker in political thriller The Constant Gardener.
Wallace and Gromit: The Curse of the Were-Rabbit won best animated feature film.
A third British success came as Martin McDonagh won best live action short film for Six Shooter.
McDonagh, an award-winning playwright, was born in London and his family are from Galway, Ireland.
Six Shooter is a black comedy starring Irish actor Brendan Gleeson, about a man who takes a train journey on the day his wife dies and encounters an oddball fellow passenger. McDonagh, 35, has won the Evening Standard Award for Most Promising Playwright and four Tony Awards. His works include The Beauty Queen of Leenane and The Pillowman.
In the major awards, Ang Lee picked up the best director award for Brokeback Mountain.
But the gay cowboy movie missed out on the biggest prize of all - best picture.
To gasps of surprise from the audience, the award went to Crash, an ensemble drama about race relations in Los Angeles, which features Matt Dillon, Sandra Bullock and Thandie Newton.
Its producer Cathy Schulman said the film had a message "about love, about tolerance, about truth".
This year's best picture nominees had made it "one of the most maverick years in American cinema," she said.
Crash also won awards for best original screenplay and best editing.
Brokeback Mountain stars Heath Ledger, Jake Gyllenhaal and Michelle Williams came away with nothing, although the film did win awards for best adapted screenplay and best original score.
Ledger was beaten to the best actor prize by Philip Seymour Hoffman for his performance as writer Truman Capote in the biopic Capote.
Reese Witherspoon was named best actress for her role as June Carter, wife of country music legend Johnny Cash, in Walk The Line.
Witherspoon, 29, beat British hopefuls Keira Knightley and Dame Judi Dench, who were nominated for Pride and Prejudice and Mrs Henderson Presents respectively.
"Oh my goodness, I never thought I would be up here in my whole life, growing up in Tennessee," she said, beginning the night's longest and most emotional speech.
Weisz, who is nearly seven months pregnant with her first child, described her win as "a tremendous, tremendous honour".
The 34-year-old thanked her "luminous" co-star Ralph Fiennes and John Le Carre, author of The Constant Gardener, a tale of corruption in the pharmaceutical industry set in Kenya.
"He wrote this unflinching, angry story and he really paid tribute to the people who are willing to risk their own lives to fight for justice. They are greater men and women than I," she said.
Backstage, Weisz joked that she had felt her baby kicking all the way through the ceremony - until the moment she went up to collect her award.
"With the lead up to that, the adrenaline, the baby was going crazy," she laughed. "Poor baby. It was kicking around, but once I went onto the stage I think it's so overwhelming that I could have hardly told you my name. So I didn't feel anything when I was up on stage."
Asked what she was thinking when her name was called out, she replied: " Because I'm pregnant my brain is a bit like porridge. I think I was a big blank. It's a very surreal, strange feeling. I was just feeling kind of strange."
And discussing baby names, she said: "There are a few names but we don't know if it's a boy or a girl. But Oscar isn't among them, that's for sure."
Weisz, elegant in a black dress by Narciso Rodriguez, was determined to party the night away despite being nearly seven months pregnant.
"I'm going to the Governors' Ball afterwards, and then to the Vanity Fair party. Let's see how long I last. I might have to put some flat shoes on," she said.
The actress, who celebrates her 35th birthday tomorrow, is expecting her first baby with director partner Darren Aronofsky.
Weisz can add her Oscar to the Golden Globe and Screen Actors' Guild awards she has already won for the same role.
The actress said her win was "absolutely not" one in the eye for Bafta voters who had snubbed her for an award.
"It's a group of people who voted, and they vote for who they think is best," she said.
Wallace and Gromit creator Nick Park scooped his fourth Oscar, although his first for a full-length feature film.
Park and co-director Steve Box of Aardman Animations took to the stage wearing giant bow ties - and produced matching miniature versions for their Oscars to wear.
"We've brought bow ties for Oscar - for co-ordination," they joked. "We just happened to bring them along."
Afterwards, Box revealed that his wife had made the mini accessories.
"My wife made these when we were over here waiting. It was kind of a last minute idea. We were very nervous about it because we know how sacred the Oscars are. So we thought, what the heck," he said.
Veteran actor and Last Of The Summer Wine star Peter Sallis, 85, who supplies the voice of madcap inventor Wallace, had made the trip to Hollywood's Kodak Theatre.
Park paid tribute to him by telling the audience: "Peter is here tonight. He has been the voice of Wallace for the past 23 years and you have been an absolute gem, Peter. You have sparkled all the way."
Aardman have won three previous Oscars for best animated short film - for A Close Shave (1996), The Wrong Trousers (1994) and Creature Comforts (1991).
The Oscar win comes four months after a devastating warehouse fire destroyed much of Aardman's history.
George Clooney won his first Oscar with a best supporting actor award for his role as a disillusioned CIA operative in oil industry thriller Syriana.
He was also nominated for best director and best original screenplay for Good Night, And Good Luck, which ended up with no awards to its name.
Keira Knightley may have empty-handed but she was undoubtedly the belle of the ball.
The 20-year-old actress, wearing a one-shouldered aubergine gown by Vera Wang, was a hit with the red carpet fashion commentators.
And the Academy showed it had fallen in love with Knightley in a spoof short film sending up the best actress nominees.
She was praised "for having the courage to act with cheekbones which may have been flecked with gold dust" before the film summed her up: "Keira Knightley - Acting While Beautiful."
The 78th annual Academy Awards were hosted this year by TV presenter Jon Stewart.
Actress and award presenter Jennifer Garner almost caused an Oscar upset when she tripped over her dress on her way across the stage.
Complete list of 78th annual Academy Award winners
Best Picture: "Crash."
Actor: Philip Seymour Hoffman, "Capote."
Actress: Reese Witherspoon, "Walk the Line."
Supporting Actor: George Clooney, "Syriana."
Supporting Actress: Rachel Weisz, "The Constant Gardener."
Director: Ang Lee, "Brokeback Mountain."
Foreign Film: "Tsotsi," South Africa.
Adapted Screenplay: Larry McMurtry and Diana Ossana, "Brokeback Mountain."
Original Screenplay: Paul Haggis and Bobby Moresco, "Crash."
Animated Feature Film: "Wallace & Gromit: The Curse of the Were-Rabbit."
Art Direction: "Memoirs of a Geisha."
Cinematography: "Memoirs of a Geisha."
Sound Mixing: "King Kong."
Sound Editing: "King Kong."
Original Score: "Brokeback Mountain," Gustavo Santaolalla.
Original Song: "It's Hard out Here for a Pimp" from " Hustle & Flow," Jordan Houston, Cedric Coleman and Paul Beauregard.
Costume: "Memoirs of a Geisha."
Documentary Feature: "March of the Penguins."
Documentary (short subject): "A Note of Triumph: The Golden Age of Norman Corwin."
Film Editing: "Crash."
Makeup: "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe."
Animated Short Film: "The Moon and the Son: An Imagined Conversation."
Live Action Short Film: "Six Shooter."
Visual Effects: "King Kong."
Oscar winners previously announced this year:Honorary Academy Award (Oscar statuette): Robert Altman.The Gordon E. Sawyer award for technical achievement (Oscar statuette): Gary Demos.
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