The producer, John L. Simpson and director Michael Joy, also won the prize for best script, and Grant Dodwell took the award for best actor.
It is the second consecutive year that a very low-budget drama, filmed without government assistance, has taken the top prize. Coincidentally, Simpson was the distributor of last year's winner, The Jammed.
Son Of A Lion , another of the best film contenders won the award for independent spirit for director Benjamin Gilmour and producer Carolyn Johnson.
Unfinished Sky , which was financed by the now defunct Film Finance Corporation, also did well in the awards, winning best director for Peter Duncan, best actress for Monic Hendrickx, and several craft awards. Hendrickx, who also starred in the Dutch film on which Unfinished Sky was based, travelled from Europe to accept her award.
Actor Hugo Weaving won the living legend award. He has appeared in films as diverse as the Lord of The Rings and the Matrix trilogies, as well as a long list of Australian films including The Adventures Of Priscilla, Queen Of The Desert and the upcoming road movie Last Ride.
The film with the most nominations, The Black Balloon, won none of its categories but did receive the box office achievement award.
The awards were held on Queensland's Gold Coast on the second night of the annual conference of the Screen Producers Association of Australia.
The full list of award winners is as follows:
Best Feature: Men's Group (director Michael Joy, producers Michael Joy and John L. Simpson)
Best Director: Peter Duncan (Unfinished Sky)
Best Actor: Grant Dodwell (Men's Group)
Best Actress: Monic Hendrickx (Unfinished Sky)
Best Cinematography: Jules O'Loughlin (September)
Best Music: Amanda Brown (Son Of A Lion)
Best Script: Michael Joy and John L. Simpson (Men's Group)
Best Documentary: The Burning Season (director Cathy Henkel, producers Jeff Canin, Trish Lake)
Best Short: Four (Director Erin White and Producer Zyra McAuliffe)
Best Animation: The Covenant Of Mr Kasch (co-directors/co-producers, Joshua Beahan, Ruwan de Silva)
Best Short Documentary: Undressing Vanessa (director Matthew Pond, producer Tina Lymberis)
Best Music Video: Just A Boy (directors Angus and Julia Stone, Josh Groom, Andrew Yoole, producers Madeleine Milasas and Jodie Passmore)
Best Production Design: Unfinished Sky (Laurie Faen)
Best Editing: Unfinished Sky (Suresh Ayyar)
Best Sound: The Square (Sam Petty, Rob Mackenzie, Peter Grace, Yulia Akerholt and Michael McMenomy)
IF Award for Independent Spirit: Son Of A Lion (director Benjamin Gilmour, producer Carolyn Johnson)
IF Award for Rising Talent: Leon Ford
Best Unproduced Screenplay: Memorial Day (Kieran Darcy-Smith)
IF Award for a Living Legend: Hugo Weaving
IF Award for Box Office Achievement: The Black Balloon