Michael Collins won the Golden Lion award for best film and its star Liam Neeson was voted best actor.
The result will anger politicians and critics who derided the film, fearing it would stoke up violence in Northern Ireland on its release, due next year.
The film was criticised by both sides. Right-wingers accused the director, Neil Jordan, of making an "anti-British travesty" while republicans attacked him for glorifying a man who was killed as a traitor.
Collins narrowly escaped execution for his part in the 1916 Easter Rising and used the Irish Republican Brotherhood, a forerunner to the IRA, to pioneer the guerrilla movement.
As the IRA's former director of intelligence, Collins was killed in an ambush in his native County Cork in 1922, aged 31.
Jordan, a 46-year-old Dubliner who has devoted 13 years to researching and making the film, defended his portrayal of Collins as a complex figure capable of violence and peace-making.
"The film spares neither the Irish nor the British in its depiction of the savagery of the time," he said during the festival. "How often has independence been achieved without bloodshed? Very rarely."Reuse content