The director and veteran left-wing activist, 79, took the top accolade at the international film festival for his story of a former Newcastle joiner who struggles in the welfare system after becoming ill.
Loach has had 12 films in competition at the Cannes Film Festival through his long career, including The Wind That Shakes The Barley, which took the Palme D’Or in 2006.
Loach, who past classics include 1969’s Kes, was up against a host of international stars for the prize. They included Spanish Oscar-winner Pedro Almodovar, Sean Penn, and Paul Verhoeven.
Accepting the Palme d’Or from actor Mel Gibson, Loach used his acceptance speech to spotlight the “dangerous project of austerity”.
“We must give a message of hope, we must say another world is possible,” he said.
“The world we live in is at a dangerous point right now. We are in the grip of a dangerous project of austerity driven by ideas that we call neo-liberalism that have brought us to near catastrophe.”
Xavier Dolan’s It’s Only The End Of The World (Juste La Fin Du Monde) won the festival’s Grand Prix, despite a critical mauling following its press screening.
The family drama stars Marion Cotillard, Léa Seydoux, Gaspard Ulliel and Vincent Cassel.
Andrea Arnold’s road movie American Honey, starring Shia LaBeouf, won the Prix du Jury (jury prize).
Asghar Farhadi’s Iranian drama The Salesman (Forushande) won two prizes on the night: Best screenplay for Farhadi and best actor for Shahab Hosseini.
Best actress went to Jaclyn Jose for her lead role in Brilliante Mendoza’s Ma’ Rosa, in which she plays a poor mother-of-four who sells drugs in Manila to make ends meet.
The best director prize was shared between France’s Olivier Assayas for Personal Shopper, starring Kristen Stewart, and Romania’s Cristian Mungiu with Graduation (Bacalaureat).
The competition jury was presided over by Mad Max director George Miller and comprised Arnaud Desplechin (France); Kirsten Dunst (US); Valeria Golino (Italy); Mads Mikkelsen (Denmark); László Nemes (Hungary); Vanessa Paradis (France); Katayoon Shahabi (Iran); and Donald Sutherland (Canada).