Mr Varadkar beat his rival, Housing Minister Simon Coveney, with 60 percent of the votes. He will become Ireland's first gay taoiseach (prime minister).
He is expected to take over from former Fine Gael leader Enda Kenny in the next few weeks.
At 38, he will also be Ireland's youngest ever prime minister.
Following the announcement on Friday evening, Mr Varadkar said he was "honoured" to accept the "enormous challenge" ahead of him with humility.
"If my election shows anything it's that prejudice has no hold in this Republic," he said.
