The 25-year-old from Denby Dale, wins £7,500, as well as the kudos associated with comedy's most prestigious award.
Sketch troupe The Consultants were named best newcomer.
Kitson said that he had not intended to attend the prize-giving because "I find such events massively uncomfortable".
He read a prepared speech, saying he was grateful for the award and thanked hi smanager and his parents - for never insisting he get a proper job.
And he joked about the validity of judging comedy, saying: "I would like to thank the juding panel for doing away with the tradition of the subjectivity of art."
Perrier comedy award director Nica Burns said: "With such great comedians on the shortlist, the final decision was terribly difficult. I am very glad that I don't have a vote. Congratulations to all the shortlist and of course to Daniel Kitson who is undoubtedly a major new comedy star. I look forward to a cracking Perrier Pick Of The Fringe season at Her Majesty's Theatre in London's West End."
The other nominees - selected by a ten-strong panel of critics, producers and comedy-goers - were
- Jimmy Carr: Bare Faced Ambition
- Omid Djalili
- Noel Fielding: Voodoo Hedgehog
- Adam Hills: Happy Feet
- Phil Nichol: Things I Like, I Lick
Last year's winners - the team behind the Garth Marenghi character - presented the award at the Edinburgh Fringe.
A small group of good-natured protestors gathered outside the event, handing out leaftlets highlighting what they claim are unethical business practices by Perrier's parent company Nestle.