Thousands poured from their homes to party through the night after their entry Running Scared - performed by duo Ell and Nikki - beat big-name rivals like Jedward and Blue to clinch the cheesy music prize.
The oil-rich former Soviet nation has pumped millions into trying to win since first entering in 2008.
It now hopes Saturday's victory will raise Azerbaijan's profile like film joker Borat did for Kazakhstan's.
Rolan Muradov, from the Azerbaijan Culture International organisation said: "Winning is very nice."
The country, which gained independence in 1991, will host next year's contest in its capital Baku.
Singer Nikki Jamal, who performed the winning song with Ell Gasimov, told of her joy after the triumph in Dusseldorf, Germany. The mum of two, 30, based in Highgate, North London, said: "It's beyond my wildest dreams. I can't believe I beat Blue and Jedward."
Previous cultural highs for Azerbaijan include being among the first countries involved in cinematography. Hits include popular 1919 flick The Celebration of the Anniversary of Azerbaijani Independence.
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