The film, by Chinese-born Chloé Zhao, stars Frances McDormand as a widow in her 60s who turns her van into a mobile home and sets out on the road, traversing the vast American West.
Australian actress Cate Blanchett, who headed the jury at the 77th edition of the festival, said the winner had been chosen after “healthy and robust” deliberations by the jury members.
“Good discussion is good discussion with a mask or not,” she added.
Zhao and McDormand accepted the award via Zoom from California.
“Thank you so much for letting us come to your festival in this weird, weird, weird world and way,” McDormand said.
Mexican director Michel Franco’s thriller New Order and historic drama Wife of a Spy by Japan’s Kiyoshi Kurosawa were also recognised with Silver Lions.
Veteran Russian director Andrei Konchalovsky was also awarded a special jury prize for Dear Comrades!, a film about the 1962 massacre of striking workers in Novocherkassk which had been tipped as a front-runner for the top prize.
British actress Vanessa Kirby, who was in Venice with two films, won the best actress award for her performance as a woman reeling from the grief of losing her newborn daughter during a home birth in Pieces of a Woman.
The best actor prize went to Italy’s Pierfrancesco Favino.
Venice was the first major film festival to take place with live audiences since the coronavirus outbreak.
Guests had to wear masks at screenings.
Around half of the seats at venues on the Lido waterfront were left empty, and few celebrities made the trip to the world’s oldest film festival due to travel restrictions.