The $101 outsider, trained by Darren Weir, stormed to the finish line to beat English stayer Max Dynamite, with Australian weight-for-age star Criterion finishing in third place.
The Ballarat-trained stayer is one of the longest priced winners in the 155-year history of the Melbourne Cup.
Payne, who has had a long association with the six-year-old horse, said she laid in bed the night before the race dreaming of winning the Cup.
"It's like a dream come true, this horse is awesome," Payne said after the race.
"What he has been through, unbelievable training to get him here like this today.
"This is everybody's dream as a jockey in Australia and now probably the world."
A capacity 24-horse field contested the $6 million Cup in front of a huge crowd at Flemington racecourse.
Veteran galloper Red Cadeaux, who had ran second three times in the race, pulled up distressed.
Fame Game started a warm favourite for the race ahead of Trip to Paris and Preferment.
Weir praised the ride of Payne and said it was hard to believe that he had one Australia's greatest race.
"I say to the owners, it's hard enough to get into the race, let alone win it and just enjoy the day and hope
like hell we can run top ten," Weir said.