The award, now valued at $100,000 from $75,000 in 2014, was announced on Friday at the Art Gallery of NSW.
It is Milsom's third time in the Archibald, two years after he famously won the $150,000 Doug Moran National Portrait Prize while in jail for armed robbery.
Waterstreet acted as his defence lawyer.
"My relationship with Charlie took on more significance a few years ago when he represented me and in the pursuit of justice stood up to what seemed an unfair, impenetrable brick wall," Milsom said.
"He put his head on the chopping block and restored my faith in the legal system."
Among the 47 finalists were Julian Meagher's portrait of singer Daniel Johns, Carla Fletcher's painting of Jenny Kee and Peter Churcher's The last portrait of Betty Churcher.
