The Return, a Russian film about the harrowing reunion of a father with his sons after a 10-year absence, won top prize, the Golden Lion, on Saturday.
First-time director Andrey Zvyagintsev dedicated the award to the 15-year-old star of the film Vladimir Garin, who tragically died a couple of months after shooting.
He drowned in the area where the film was set.
"There are only two actors here. Those who've seen the film know there should be three actors, three heroes up here. But two months ago he died tragically," said Zvyaginstev, who was greeted with a standing ovation.
"We want to dedicate this victory to him."
The brooding picture tells the story of two boys whose lives are changed forever when they go on a fishing trip in rugged Russian lake country with their newly returned father.
The Return (Vozvraschenie) also won the award for best first feature.
"For a first-time director it's absolutely extraordinary," said Screen International critic Lee Marshall before the award was announced. "It's an incredibly strong story of a father-son conflict with elements of even Greek tragedy behind it."
Russia's Andrey Zvyagintsev gets
Golden Lion prize for best film
In another strange coincidence, a different first-time Russian director won the Golden Lion in 1962. He was Andrei Tarkovsky, presenting the film Ivanovo Detstvo.
The runner-up Jury Grand Prix was awarded to The Kite (Le Cerf-Volant), a film by Lebanese director Randa Chahal Sabbag about love and separation along the Lebanese-Israeli border.
Cult Japanese filmmaker Takeshi Kitano won a Silver Lion for his directing of Zatoichi, about a blind samurai warrior who saves a village from sword-wielding gangsters. Kitano won the Golden Lion in 1997 for his film Hana Bi.
Penn best actor
Sean Penn won best actor for his role as a terminally ill university professor in 21 Grams, a film about loss and redemption in middle American which is already being tipped for an Oscar nomination.
Penn dedicated his award to the director of the film, Mexico's acclaimed Alejandro Gonzalez Inarritu, and fellow stars Benicio Del Toro and Naomi Watts.
Lebanon's Randa Chahal Sabbag
wins Silver Lion for The Kite
When asked how it compared to an Oscar, he said: "It's an entirely different honour, which honours the kind of filmmaking I'm interested. On top of that, on the way in at the door no-one asked me what I was wearing."
Germany's Katja Riemann won best actress for her role in Rosenstrasse as the Aryan wife of a Jew in Nazi Germany. The moving film tells the story of a group of women who stood up to the regime to demand the release of their Jewish husbands.
And Italian director Marco Bellocchio won the prize for "outstanding individual contribution" for his Goodmorning, Night (Buongiorno, Notte) about the 1978 kidnapping and murder of former Italian Prime Minister Aldo Moro.
Spoilt for choice
Organisers said the jury was spoiled for choice this year by the number of high quality films on offer.
Hollywood heavyweight Sean
Penn is best actor with 21 Grams
"The most important indicator of success has been that almost all the films shown have been sold out for distribution," said Franco Bernabe, the president of the Biennale umbrella group which organises the festival.
Twenty films competed for the Golden Lion award at the 60th annual edition of the world's oldest film competition, but about 145 titles were shown.
A dazzling array of film stars including George Clooney, Johnny Depp and Catherine Zeta-Jones lured fans to Venice's Lido throughout the festivities, which were kicked off by Woody Allen's new comedy Anything Else.