A team of students from the Polytechnic of Turin beat off competition from 65,000 other hopefuls from 100 countries to win the $25,000 (£13,122) prize for devising a way to allow doctors to build a new relationship with patients suffering from memory-related disorders.
Their "revolutionary tool" collects psycho-physiological data from patients who would otherwise not be able to communicate their symptoms to doctors.
The students attributed their success to a multi-disciplinary team that consisted of a computer engineer, a biomedical engineer, a communication scientist and a graphic designer.
Britain's team, Three Pair, also explored the impact of memory problems. Their digital-recovery environment is designed to reduce the emotional trauma of memory loss in critically ill patients who need intensive care. Their device offers patients personal messages, news and media delivered to the bedside.
"These students demonstrated an amazing combination of passion and creativity for using technology to solve real-world problems," says Joe Wilson, director of academic initiatives at Microsoft, the team that manages the Imagine Cup.
"Worldwide competitions such as the Imagine Cup allow students to think past their boundaries."
Bill Gates, the founder of Microsoft and its chief software architect, says: "It's amazing to see all these passionate students doing such great work. The Imagine Cup brings fun competition and tough challenges to the next generation of software innovators, and I'm excited that Microsoft is helping them to succeed."
For 2007, when the world final will be held in Korea, the theme is: "Imagine a world where technology enables a better education for all."