The deeply humanist film by Paolo and Vittorio Taviani, aged 80 and 82, who have been making politically engaged cinema for half a century, was an early crowd pleaser at a festival which failed to produce a hands-down favourite.
Critics said the jury led by British director Mike Leigh had played it safe with its selections.
"The 62nd Berlinale had everything that this film festival needs -- strong, political films from young, engaged film-makers in competition. Berlin can easily hold its own with Cannes and Venice this way," the website of German news weekly Der Spiegel said, referring to Europe's other top cinema showcases.
"However 'Caesar Must Die' is unfortunately a very conservative selection."
Berlin's daily Tagesspiegel agreed. "The jury shunned almost all the contemporary films that were admired or hotly debated at an otherwise pretty remarkable festival."
The Hollywood Reporter said the victory for "Caesar Must Die" marked a "major upset" over the works of young directors such as the Portuguese melodrama "Tabu", an inventive two-part black-and-white melodrama set in today's Lisbon and colonial Africa.
Its director Miguel Gomes took home the Alfred Bauer Prize for works of particular innovation.
"Caesar Must Die", which was also filmed largely in black-and-white and whose dialogue stems mainly from the original Shakespeare, blends gentle humour with an emotional punch as the hardened criminals struggle to learn their lines and hit their marks.
"We hope that when the film is released to the general public that cinemagoers will say to themselves or even those around them ... that even a prisoner with a dreadful sentence, even a life sentence, is and remains a human being," Paolo Taviani said as he and his brother claimed their trophy.
Last year, the harrowing Iranian family drama "A Separation" captured the Golden Bear and swept the acting prizes and is now nominated for two Oscars. Its director Asghar Farhadi served on this year's jury.
Reviewers said it was unlikely "Caesar Must Die" would match that glory but that the festival had helped to launch other strong films.
The Jury Grand Prix runner-up award went to the chilling drama "Just the Wind" by Bence Fliegauf, which was inspired by a spree of killings of Roma in Hungary in 2008-2009 which claimed six victims including a five-year-old boy.
Rachel Mwanza, a 14-year-old from the Democratic Republic of Congo appearing in her first movie, the moving Canadian child soldier tale "War Witch", accepted the Silver Bear award for best actress from jury member Jake Gyllenhaal.
The film tells the story of Komona, a girl in a country strongly resembling DRC who is snatched from her village by armed rebels, forced to gun down her parents and made her commander's mistress.
Mwanza was one of Kinshasa's street children before director Kim Nguyen discovered her and learned to read while working on the film.
"I had a very hard life and when I met Mr Kim, I knew that for me it was a chance so that's why I worked hard because I knew this work was going to give me something better in my life," she told reporters.
Denmark's Mikkel Boe Folsgaard, who played mad king Christian VII in a costume drama based on a true story, "A Royal Affair", took best actor. The film also won best screenplay.
Germany's Christian Petzold took best director for "Barbara", a haunting drama about a woman plotting to escape communist East Germany which had been tipped to win the Golden Bear.
Alongside hard-hitting international cinema, the 11-day event offered serious star wattage including Angelina Jolie presenting her directorial debut, "In the Land of Blood and Honey", and Meryl Streep accepting a Golden Bear for her life's work.
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