The result, announced at the party's conference in Torquay, was greeted with cheers in the hall, but not everyone is happy and Ukip's troubles seem far from over.
He had joined Ukip in 2014 having stood for the Liberal Democrats in the 2005 General Election.
Instead, Ukip's fourth leader inside a year is a low-key technocrat who has worked for the United Nations, stood as a Liberal Democrat MP and ran on the pledge to professionalise and unite a party riven by splits and seeking a new goal following the Brexit referendum.
Voters have threatened to quit the party over Waters' extreme anti-Islam rhetoric.
Former police officer and soldier Henry Bolton is Ukip's new leader following a shock result.
"The other thing is, I do not believe for a moment that we should be pushing this out and allowing the negotiations to be endless before we leave".
Bolton said after his unexpected victory that securing Britain's rapid exit from the European Union is the party's "core task". But, amid the guff, Roger Helmer, the party's energy spokesman, warned against the "undue and excessive" concern with Islamism during the leadership campaign.
Quoting the "serve to lead" motto of the Sandhurst royal military academy - from which he was a graduate - Mr Bolton said: "I do not see myself now as being simply your leader, I see myself as serving this party".
There were a total of 12,915 votes cast in the leadership election, compared with the more than 300,000 secured by Jeremy Corbyn when he was re-elected as Labour leader past year.
"Without being united, we can not lead", Bolton said.
After exactly three years as leader, Mr Farage resigned to fight the Buckingham seat of Commons Speaker John Bercow at the 2010 election, subsequently coming third with 17 per cent of the vote.