Mr Taylor succeeded in knifing the party's first female leader nine months into the job, winning 34 votes to 17.
The spill motion carried 33-17, with one informal vote to bring on the spill.
Jane Hume won the deputy leadership, coming through a contested field that also included incumbent deputy Ted O'Brien as well as Dan Tehan and Melissa Price.
The Victorian senator won the final ballot over the shadow treasurer 30-20, again with one informal vote.
Senator Hume won the first round with 20 votes while Mr O'Brien was second with 16, Mr Tehan third with 13 and Melissa Price in last with two.
Mr Tehan's numbers ultimately fell behind Senator Hume.
Minutes after the ballot, former Liberal prime minister Tony Abbott - who himself was knifed as prime minister before losing his seat to an independent - said the party room had to unify behind the new leader and declared the next election winnable despite Labor's super majority.
Mr Taylor resigned from Ms Ley's front bench on Wednesday to challenge for the leadership, saying the party lacked direction.
A slate of frontbenchers and most of Ms Ley's leadership team tendered their resignations throughout Thursday, revealing an intention to back Mr Taylor.
This included conservatives James Paterson, Jonno Duniam and Michaelia Cash while some of Ms Ley's former backers also handed in their resignations, backing a direction change.
"The Liberal Party's position under Sussan Ley's leadership has continued to deteriorate, leaving it weaker than at any time since its formation in 1944. This is a confronting reality, but one we cannot ignore," Mr Taylor said in announcing his candidateship.
The leadership spill followed polling that showed the coalition's primary vote had slumped to a record low and being overtaken by Pauline Hanson's One Nation.
Mr Taylor's ballot victory ends the tenure of Ms Ley as the Liberals' first female leader and first female opposition leader.
The MP for the mostly rural seat of Farrer spent just nine months in the role after taking over leadership of the party after the coalition's landslide defeat at the 2025 election.
She will be the second-shortest serving leader in the party's history.