His win has cemented the film's chances at the Oscars this year.
The movie, which entered the race with maximum seven nominations, is a lyrical drama of a mute cleaning lady at a government lab and her unique bond with a mysterious scaled creature, living in the lab's water tank. The creature is a classified secret.
The 53-year-old Mexican filmmaker, known for alternating between dark Spanish language pieces and American mainstream films, described how "monsters" shaped his personality since childhood.
"For 25 years, I have hand-crafted very strange little tales, made of motion, colour, light and shadow," he said in his acceptance speech.
An emotional del Toro took a heavy breath and credited his stories for being his saviour.
"These strange stories and fables have saved my life. Once with 'The Devil's Backbone' and then with 'Pan's Labyrinth' and now with 'The Shape of Water'."
The director bested Christopher Nolan ("Dunkirk"), Ridley Scott ("All The Money In The World) and Steven Spielberg ("The Post") who were being considered as the frontrunners for the honour.
He was also nominated in the category of Best Screenplay of a Motion Picture. del Toro lost to Martin McDonagh, who also received the nomination for Best Director for Motion Picture, for his work in "Three Billboards".
The presenter of the honour, actor Natalie Portman highlighted the lack of female nominees in her introduction to the category.
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