After a tense few hours of voting overnight, the 193 UN Members gave Australia 140 votes, giving it the two-thirds majority it needed to win the non-permanent seat.
Luxembourg won 128 votes and Finland 108.
It is the fifth time Australia will serve on the Security Council.
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But it has not held a seat since 1986 under the Hawke Labor Government.
Foreign Minister Bob Carr believes the successful bid in 2012 reflects the high level of respect for Australia in the international community.
"This vote endorses Australia as a good global citizen, he said.
"This is the world saying we respect Australian values. We respect Australian professionalism. We want Australia to help. This is the world saying that. And for us as a middle power, a long way from the centres of clout in the world, the centres of power in the world, this is a lovely moment."
Australia relied heavily on African, Caribbean and Pacific Island nations to get enough support to win the seat.
The federal Opposition believes the Gillard Government has focused too much over recent years on aid programs to Africa, simply to win over these nations in its bid for a Security Council seat.
The Federal Parliamentary Secretary for Foreign Affairs Richard Marles says Australia won the seat for a variety of reasons, including its strong historic record in peacekeeping missions around the world.
He believes these skills will serve the country well on the Security Council.
"I think that Australia's standing in the world as a proponent of peace-building is an issue that has been in the forefront of people's minds when they have been thinking about which way to vote. What we've done in East Timor, in the Solomon Islands, in Bougainville close to home are the kinds of values and experiences that we will take forward in our role on the Security Council."
The last time Australia made a bid for a seat on the Security Council was in 1996 under the previous Coalition Government.
It failed when UN members, which had promised in private talks to back Australia's bid, failed to do so in the final vote.
Australia's Ambassador to the United Nations Gary Quinlan says he is grateful that all countries that promised to back Australia did so this time around.
"The great thing is that people voted the way they told us they were going to vote and that really is a terrific feeling to know that you're working with colleagues like that. I want to thank again all our team here in New York in particular. It's just a stunning performance by them."
Senator Carr says winning a Security Council seat will give Australia more say as part of efforts to resolve conflicts around the world, including the current conflict in Syria.
The Foreign Minister recently put forward a plan to the UN aimed at getting a commitment from the Syrian government and opposition forces to protect medical facilities and personnel in the country.
Senator Carr says having a Security Council seat will give Australia more power to lobby for that plan.
"We want support for our plan to get protection and we ought to have protection under international law for the ambulances and the hospitals and the medical personnel, so that at the very least the people of Syria can get the medical aid they need. I discussed this with UN officials yesterday and we see this as the pressing priority of the moment."
The Security Council has also elected four other non-permanent members for 2013-14.
Luxembourg won a seat after a second round of voting.
The other new non-permanent members are Argentina, Rwanda and South Korea.
They will all take up their seats in January for a two year stint.
