The Hurt Locker became The Little Film That Could Sunday night, scoring historic wins for director Kathryn Bigelow and for all women as it blew up its blockbuster rival Avatar at the 82nd annual Academy Awards.

Bigelow's testosterone-fuelled and independently funded bomb squad drama, set in the Iraq War, won Oscar's top prizes of Best Picture and Best Director, in both cases a first for a woman. They were also Bigelow's first Oscar nominations and wins in her 32-year film career.

The victories capped an astounding turnaround for a film that almost went direct to DVD, before coming to the Toronto International Film Festival in 2008 and winning rave critical reviews. The Hurt Locker earned just $18 million (U.S.) worldwide in its theatrical release, a tiny percentage of the record $2.6 billion taken by Avatar, which was directed by Canadian James Cameron, Bigelow's ex-husband.

"Well, the time has come!" actress/director Barbra Streisand said, as she announced Bigelow's name for Best Director shortly before midnight. The audience at Hollywood's Kodak Theatre rose in standing ovation.

"There is no other way to describe it but the moment of a lifetime," said Bigelow, 58, gripping her statue tightly, overcome with emotion.

She dedicated her award to the "women and men of the military who risk their lives daily in Iraq and Afghanistan ... may they come home safe."

She offered similar sentiments as she took the stage moments later with her screenwriter boyfriend Mark Boal, himself a first-time Oscar winner, and also the main cast members of the film, to receive from actor/director Tom Hanks her Best Picture trophy.

"First time lucky" was the night's unofficial motto. The winner's circle was repeatedly visited by first-time nominees, perhaps indicating a desire by voters to award fresh faces.

Best Actress Sandra Bullock won her first nomination and Oscar at age 45 for The Blind Side, a drama about a white woman who helps a poor black youth achieve his football dream. Her victory made an also-ran of perennial Academy favourite Meryl Streep, who with 16 nominations is the most-nominated woman in Oscar history.

Bullock, too, received a standing ovation.

"Did I really earn this, or did I just wear you all down?" she asked, in what might well have been the best line of the night. She graciously recognized her fellow nominees for what she modestly called a "once-in-a-lifetime" achievement.

Bullock finally broke down in tears as she thanked her "trail-blazer" mom most off all, for forcing her to do her schoolwork rather than allowing her to ride around in cars with boys.

Jeff Bridges, 60, was also a first-time winner, gaining Best Actor for his portray of a fallen country star in Crazy Heart. It was his fifth nomination but first Oscar success.

He was another popular choice, also winning a standing ovation. Known as "The Dude" for a previous role, Bridges seemed giddy as he basked in the spotlight, offering no profundities and ignoring the 45-second time limit imposed on winners as he thanked everyone from his mother and father and wife to seemingly everyone who worked on the film with him.

Best Supporting Actress winner Mo'Nique received a standing ovation after winning for her portrayal of the monster mom in Precious: Based on the Novel `Push' by Sapphire.

Criticized by some bloggers and pundits for not campaigning hard enough, she thanked the academy for proving with her win that "it can be about the performance and not the politics."

Best Supporting Actor winner Christoph Waltz, 53, who played diabolical Jew hunter Col. Hans Landa in Quentin Tarantino's World War II fantasy Inglourious Basterds, continued a winning streak that began with the film's debut at the Cannes Film Festival last May.

The win was not only Waltz's first nomination; he also took it as a welcome to Hollywood, after many years of making films in Europe.

"This is your welcoming way," he said, beaming. "There's no way I can ever thank you enough. But I can start right now."

Another rookie scored the night's first upset: Geoffrey Fletcher won Best Adapted Screenplay for Precious: Based on the Novel `Push' by Sapphire. He beat Canadian-born Jason Reitman, who had been heavily favoured to win for Up in the Air with his co-writer Sheldon Turner.

Fletcher fought back tears as he accepted his award.

"This is for everybody who works on a dream every day. Precious boys and girls everywhere."

Going into the awards, Canadian-born James Cameron's sci-fi epic Avatar and his former wife Bigelow's bomb-squad drama The Hurt Locker both had a leading nine nominations.

Avatar didn't make the expected clean sweep of the crafts categories, losing the two sound categories to the team from The Hurt Locker. Cameron was clearly not going to repeat the flood of awards he enjoyed with Titanic in 1998.

The first Oscar for Avatar didn't come until nearly the 90-minute mark in the broadcast, when the three art directors for the film converted their nomination into a win for Best Art Direction. Avatar later won for Best Cinematography, beating The Hurt Locker in that category, and for Best Visual Effects, one of the prizes it seemed guaranteed to win.

Then Avatar lost again, to another first-time winner: Michael Giacchino scored for Best Original Score for his unforgettable instrumentals for Pixar's animated adventure Up.

Up also won for Best Animated Feature, as expected.

It was the first Oscar in six nominations for lanky director Pete Docter.

"Boy, never did I dream that making a flip book out of my third grade math book would lead to this!" Docter exulted.

Avatar also lost the Best Film Editing award, which went to The Hurt Locker.

The Best Foreign Language film award, in a closely fought race, went to the Argentine thriller The Secret in Their Eyes. It beat Michael Haneke's heavily favoured The White Ribbon, which won the Palme d'Or at Cannes last year.

Best Documentary Feature winners Louie Psihoyos and Fisher Stevens were – you guessed it – first-time lucky with The Cove, their shocking exposé of the exploitation of dolphins.

Once again, it seemed the Oscar voters were choosing fresh talent over old veterans.