There were boos and cries of astonishment when Kanye stormed the stage, grabbing the microphone from Taylor as she accepted the Best Female Music Video.
He told her: "Yo Taylor. I'm really happy for you, I'm going to let you finish, but Beyonce had one of the best videos of all time."
After handing the shell-shocked 19-year-old back the mic, he left, but Taylor was unable to continue.
She was given her time to shine though, when Beyonce called her back on stage after the bootylicious singer won Best Video for Single Ladies.
She recalled her first ever MTV awards win, aged 17, and how much it meant, before inviting Taylor to join her.
The pair, both dressed in pillar box red, embraced before Beyonce passed the microphone to Taylor.
Kanye, who MTV said was ejected from the New York ceremony, later apologised for his outburst on his Twitter account. "I'm in the wrong for going on stage and taking away from her moment," he wrote. "I'm soooo sorry to Taylor Swift, her fans and her mom."
For her part, Taylor said she felt incredibly grateful to Beyonce for giving up her moment to allow her to speak.
"It was just so wonderful and so incredibly classy of her and just gracious and wonderful to let me say something," said the blonde star.
The other big talking point of the ceremony, at which Lady GaGa and Britney Spears also won awards, was Madonna's emotional tribute to Michael Jackson.
The queen of pop accused herself and the world of "abandoning him."
She told the crowd: "When I first heard that Michael had died I was in London, days away from the opening of my tour.
"All I could think about in that moment was I had abandoned him, that we had abandoned him, that we had allowed this magnificent creature who once set the world on fire to somehow slip through the cracks."