The pair embraced on stage after their controversial rendition of the song Stan from Eminem's The Marshall Mathers LP.
But the judges put controversy to one side and gave Eminem, whose real name is Marshall Mathers, three prizes, including one for best rap album.
Eminem also received a standing ovation for his duet with the gay singer Sir Elton John - who played keyboards in a pink polka-dot suit.
The pair embraced on stage after their controversial rendition of the song Stan from Eminem's The Marshall Mathers LP.
Eminem censored his own lyrics during the performance, replacing swear words with "messed up" and "crumby".
Receiving the best rap solo Grammy Eminem said: "I want to thank everybody who could look past the controversy and see the album for what it was - and also for what it isn't."
Major upset
But some of the rapper's thunder was stolen by veteran jazz rockers Steely Dan, who took the prestigious Album of the Year award for Two Against Nature.
It was the band's first Grammy in its 30-year history.
Irish supergroup U2 picked up three prizes, including record of the year for Beautiful Day.
"Really, I didn't expect to win this award. It is a very unusual emotion I'm feeling right now. I think it's called humility," said U2 singer Bono.
Macy Gray beat Madonna, Christine Aguilera and Britney Spears to the best female artist award. And Destiny's Child were named best rhythm and blues group.
UK rock band Radiohead took best alternative album award for their experimental Kid A - which reached number one in the US charts.
The Oxford group's fourth album - which abandoned traditional song structures in favour of bleak atmospheric rhythms - was widely seen as commercial suicide.
Outrage outside
The BBC's David Willis in Los Angeles say that this year's Grammys shed their sometimes stuffy and out of touch image with the storm of controversy surrounding Eminem.
Gay rights protesters chanted "Shame!" outside the ceremony as Eminem and Elton John prepared to take to the same stage.
"Eminem has the right to say and express himself anyway he wishes," said Scott Seomin of GLAAD, the Gay and Lesbian Alliance Against Defamation.
"But the first amendment in this country does not guarantee anyone the right to a record contract."
"The real danger lies in Eminem's fan base: easily influenced adolescent males," Seomin said. "They emulate his dress, his mannerisms, and ultimately his words and his beliefs."