British actress Kate Winslet has won her first Oscar, for best actress in The Reader, finally clinching the award on her sixth nomination.
Hit British film Slumdog Millionaire has won the top prize at the Academy Awards, winning eight Oscars including best director and best picture.
"I'd be lying if I hadn't made a version of this speech. I think I was probably eight years old and staring into a mirror," said Winslet, 33.
In a great night for Britain, Kate Winslet won the best actress Oscar for The Reader, finally clinching the award on her sixth nomination.
The big surprise of the night was Sean Penn, winning best actor for his role as gay rights activist Harvey Milk.
The big surprise of the night was Sean Penn, winning best actor for his role as gay rights activist Harvey Milk.
"You commie, gay-loving, sons of guns," said Penn, who previously won in 2004.
Heath Ledger won a posthumous Oscar for supporting actor for The Dark Knight.
"I did not expect this and I wanted to be very clear that I know how hard I make it to appreciate me," said the outspoken 48-year-old.
Mickey Rourke had been widely expected to win for his acclaimed comeback role in The Wrestler.
It proved an exceptional night for Britain with director Danny Boyle winning best director for Slumdog Millionaire.
The film, which has seven awards, is widely expected to take best picture.
Boyle bounced in delight telling the audience, "I swore [to my children] if this miracle ever happened I would receive it in the spirit of Tigger."
Earlier actor Heath Ledger won a posthumous Oscar, for best supporting actor, for The Dark Knight.
His family received the award on behalf of Ledger, who died in January 2008.
"We have been truly overwhelmed by the honour and respect being bestowed upon him with this award," his mother said.
Ledger becomes the second performer to win a posthumous Oscar, following Peter Finch's win for Network in 1977.
Spanish actress Penelope Cruz became the first major winner of the night, winning best supporting actress, at the 81st Academy Awards in Hollywood.
The 34-year-old star won her first Oscar for her performance as a passionate artist in Woody Allen's Vicky Cristina Barcelona.
"Has anybody ever fainted here. I might be the first one," said Cruz, who was previously nominated in 2007.
Cruz, who becomes the first Spanish actress to win an acting Oscar, dedicated her award "to all the actors from my country".
"Thank you Woody for trusting me with this beautiful character," she said.
Opening medley Sean Penn was named best actor for his role in Mystic River in 2004
Australian star Hugh Jackman, who is hosting the awards at the Kodak Theater, opened with a song medley paying tribute to the five best picture nominees.
British film Slumdog Millionaire, from director Danny Boyle, is tipped to win the evening's top prize, best picture.
It has so far picked up eight Oscars, including gongs for best adapted screenplay, cinematography, sound mixing, film editing, best original score and best song.
"There are a few places I never imagined being... the moon, the South Pole, the Miss World podium and here," joked British screenwriter Simon Beaufoy, previously best known for writing The Full Monty.
He paid tribute to Vikas Swarup, the author of the novel on which the film was based, as well as the actors, producer Christian Colson and director Danny Boyle - whom he dubbed "the other two musketeers".
Indian composer AR Rahman, who received two Oscars - for best song and best score - praised the film's themes of hope and optimism.
The movie, a rags-to-riches tale set in the slums of Mumbai, has been named best film by the producers', writers', actors' and directors' guilds in the US.
Emotional tribute
Dustin Lance Black won best original screenplay for Milk, and paid emotional tribute to the gay rights activist Harvey Milk.
"I heard the story of Harvey Milk and it gave me hope ... one day I could live my life openly as who I am and that maybe even I could fall in love and one day get married."
As anticipated, the Oscar for best animated feature went to robot comedy Wall-E.
The film, directed by Andrew Stanton, is almost entirely free of dialogue.
Heath Ledger becomes only the second actor to receive a posthumous Oscar
Organisers are hoping to claw back the ceremony's TV audience, with a musical turn from Beyonce who joined Jackman performing songs from some of Hollywood's best-loved musicals.
Last year's event watched by just 32m viewers in the US, down from 40m in 2007 and the lowest figure since 1974, when the current ratings system began.
Comedian Jerry Lewis received the Jean Hersholt Humanitarian Award, which recognises humanitarian efforts.
"This award touches my heart and the very depth of my soul because of who the award is from, and those it will benefit," said 82-year-old star.
The Nutty Professor star has raised over $2 billion (£1.3bn) for the Muscular Dystrophy Association through his annual Labor Day telethon.
