The People's Choice Award, chosen by the votes of audience members, makes "La La Land" an early front-runner in the Oscar best picture race.
Other recent winners of the Toronto prize have gone on to win the top Oscar, such as "Slumdog Millionaire", "The King's Speech" and "12 Years a Slave".
Starring Emma Stone and Ryan Gosling, "La La Land" follows the two leads as their lives converge in poetic chaos while they try to make their respective dreams come true in the midst of a blossoming love affair.
"La La Land" is from 31-year-old writer-director Damien Chazelle, who made a splash with his 2014 film "Whiplash", an intense study of a jazz drummer's quest to perfection. That film won three Oscars.
"Getting to even make this movie was a dream come true," Chazelle, who was not present, said in statement read at the ceremony. "To see it connect with Toronto audiences in this way is deeply gratifying."
Now in its 41st year, the Toronto festival ranks with Cannes and Sundance as one of the world's top movie gatherings.
The sprawling festival, with more than 400 films screened, often serves as a launch pad for films and performances for the awards season that culminates with the Oscars.
Other films honoured at the ceremony include Toronto Platform Prize winner "Jackie", directed by Pablo Larrain, a portrayal of Jacqueline Kennedy in the aftermath of the assassination of her husband, US President John F Kennedy.
The Platform Prize is determined by a jury that this year comprised directors Brian De Palma and Mahamat-Saleh Haroun and actor Zhang Ziyi.
Zhang said "Jackie" explored the myth of the "American Camelot" and lauded its "preeminent" performance by leading woman Natalie Portman.
"Jackie" came to Toronto without a US distributor, but the rights were soon acquired by Fox Searchlight, a studio that has proven to be a savvy awards season campaigner.
The People's Choice Award for top documentary went to "I Am Not Your Negro" by Raoul Peck, which examines what it means to be black in the United States.
The People's Choice Award for top film in the Midnight Madness programme, which often showcases horror and offbeat films, went to "Free Fire" by Ben Wheatley, which sees two groups of criminals in an arms deal gone wrong.