The Chinese-American filmmaker is the first woman of colour to have won the award, and only the second female winner in the ceremony’s history, after Kathryn Bigelow (who won for The Hurt Locker in 2009).
Nomadland is a road movie starring Frances McDormand as a woman struggling to stay afloat in the contemporary American west.
Accepting the award from last year’s winner Bong Joon Ho, who attended the ceremony virtually, Zhao said: “This is for anyone who has the faith and courage to hold onto the goodness in themselves and in each other. This is for you; you inspire me to keep going.”
Nomadland is Zhao’s third film, following 2017’s acclaimed The Rider and 2015’s Songs My Brothers Taught Me.
Her next film, Marvel franchise blockbuster Eternals, will be released in cinemas later this year.
The 93rd Academy Awards took place on 25 April, having been delayed for two months due to the ongoing pandemic.
The ceremony was held primarily in Los Angeles’s famed Union Station, with nominees from outside of the US attending the event via international hubs.
Among the other films competing for top awards were Emerald Fennell’s feminist revenge satire Promising Young Woman, and the August Wilson play adaptation Ma Rainey’s Black Bottom.
Going into the night, David Fincher’s Mank had the most nominations (10), including for Best Director, Best Actor for Gary Oldman and Best Supporting Actress for Amanda Seyfried.