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The 30-year-old was a favourite to win the trophy for the difficult role, which saw her chopping off her tresses and losing about 25lb.
This is Hathaway's first Academy Award, she was previously nominated for her 2008 movie 'Rachel Getting Married'.
Her award was announced by last year's best supporting Oscar winner Christopher Plummer.
Looking stunning in a baby pink gown, Hathaway thanked her husband Adam Shulman, director Tom Hooper, fellow nominees and made a special mention of co-star Hugh Jackman in her speech.
"It came true... I hope sometime in near future the misfortunes of Fantine will only be found in stories and not in real life," Hathaway said.
She beat actresses Amy Adams ('The Master'), Sally Field ('Lincoln'), Helen Hunt ('The Sessions') and Jacki Weaver ('Silver Linings Playbook') to take home the trophy.
The musical drama, based on Victor Hugo's French historical novel, saw Hathaway play a mother who is fired from her workplace and is later forced into prostitution in order to take care of her daughter.
Interestingly, Hathaway's own mother played the role in the past on Broadway but quit acting to devote herself to parenting.
The actress previously won Golden Globes, BAFTA and a SAG Award for her performance before taking home the coveted golden statuette.
