This is the very first James Bond theme to win an Oscar.
The 24-year-old singer went into the elite competition looking like the smart bet to bring home the trophy as the song became an instant classic after its release.
The British songstress, who also performed the song at the ceremony, co-wrote it with Paul Epworth especially for the film and the opening words 'This is the end' fit perfectly with the film's themes of death and rebirth.
"This is amazing... thank you for believing in me," said a teary eyed Adele while accepting her trophy at the glittering award ceremony.
Adele defeated Jayashri's Pi's Lullaby from 'Life Of Pi' which she co-wrote with composer Michael Danna and late sitarist Ravi Shankar's daughter Norah Jones for 'Everybody Needs a Friend' from 'Ted'.
She also saw off competition from Before My time from 'Chasing Ice' and Suddenly from 'Les Miserables'.
'Skyfall' was indeed emotional for Adele as it marked her return to recording since the major surgery she underwent as a result of a vocal cord haemorrhage in late 2011.
Adele has been enjoying a pretty remarkable run of good luck in the past few years -- her second album '21' sold over twenty-five million copies worldwide, she earned six Grammy awards in 2012 (more than any other female artist has won in one year), and she picked up a Golden Globe in January for 'Skyfall'.
Best Original Song has been won by only a handful of Brits down the years. In 1966 John Barry - the original James Bond composer - won with lyricist Don Black for the theme from non-007 film 'Born Free'.
Tim Rice and Elton John scored with Can You Feel the Love Tonight from 'The Lion King' in 1994.
Two years later Tim won again with Andrew Lloyd Webber for You Must Love Me from 'Evita'. Then in 1999 You'll Be in My Heart from 'Tarzan' won it for Phil Collins.