In the Liberal Party leadership challenge, Mr Turnbull won 48 votes to Mr Dutton’s 35.
Following the result, the Australian Prime Minister appealed for the government to unite.
He told his peers: “It’s really important that we put our differences behind us and get on with the job of looking after Australians.”
The move came after a backbench uprising escalated in the past few days over a key climate change policy.
As is the case in the UK, under the Australian political system, the Prime Minister is the leader of the party or coalition that has obtained a majority in Parliament and he/she is not directly elected by the public.
Home Affairs Minister Peter Dutton was chosen to challenge the Prime Minister, but decided to resign and return to the back benches following his defeat.
Mr Turnbull claimed he did not “bear any grudge against Peter Dutton”.
He said: “My job is to do everything we can to make sure we are united and work together.
“That is why it is very important that today the Liberal Party room has confirmed our leadership of the party.”
Mr Dutton stated he accepted the result and would support the Prime Minister, but did not exclude supporting another leadership challenge.
The now former Home Affairs Minister said: “I want to make sure that I can support the party and make sure we win the next election.”
Deputy leader Julie Bishop claimed the result indicated an “overwhelming vote of support” for Mr Turnbull.
Since Prime Minister John Howard lost power in 2007, Australian politics has been characterised by numerous leadership coups.
Mr Turnbull was elected in 2015 after ousting Tony Abbott in a leadership challenge.
He is currently the longest serving Prime Minister since 2007, as not a single leader has served a full three-year term since that date.