Prime Minister Sir Keir Starmer congratulated Russell, saying: "People in Scotland have once again voted for change.
"Next year there is a chance to turbo charge delivery by putting Labour in power on both sides of the border."
The turnout was 44.2%, with more than 27,000 votes cast. It is a drop on the 2021 election when turnout was 60%.
The result means Scottish Labour has overturned a majority of 4,582 won by Christina McKelvie in 2021.
She died aged 57 in March after being diagnosed with secondary breast cancer.
The by-election result follows a difficult period for Scottish Labour since it swept the SNP aside in last summer's general election.
The party had seen its support drop in the polls, with policies like cuts to the winter fuel allowance widely blamed for turning away voters.
Ahead of the vote, First Minister John Swinney had claimed it was a "two-horse race" between the SNP and Reform.
But his party's candidate, Katy Loudon, endured her third election defeat in the area – having lost out to Labour's Michael Shanks at the 2024 general election and 2023 Rutherglen and Hamilton West by-election.
After the result, Swinney said his party had "made progress since the election last year but not enough". He posted on X: "We still have work to do and we will do it."
Davy Russell, who was raised and still lives in the village of Quarter in the constituency, has worked for local government and previously served as deputy lord lieutenant, representing the monarch at local events.
His victory comes after criticism during the campaign for a lack of media appearances – with political opponents dismissing him as "the invisible man".
Russell said constituents had been "let down" by the SNP.
He added that the result sent a message to Reform leader Nigel Farage that his party's "poison" was not welcome in Scotland.
'Remarkable result' for Reform
Reform has not won an election in Scotland, but the party has attracted significant vote shares in local by-elections in recent months, particularly in the central belt.
Deputy leader, Richard Tice, said the "remarkable" result was a "massive boost" for his party going into the 2026 vote.
He also rejected claims Reform had created a poisonous atmosphere in Scottish politics, insisting parties were "terrified" of Reform.
The Conservatives managed to avoid a worst-case scenario of losing their deposit by winning more than 5% of the vote.
Scottish Conservative finance spokesperson Craig Hoy described it as a "disappointing" night.
He said his party was determined to "restore trust with the Scottish people".
In the lead up to the vote both Labour and the SNP accused Reform of racism over an online advert criticising Anas Sarwar.
The video, posted on Facebook and Instagram, features clips from a speech Sarwar made in 2022.
Reform added text claiming that Sarwar wanted to "prioritise the Pakistani community" – despite the Glasgow MSP not saying that.
Farage defended the video and, during a campaign visit to Scotland, accused Sarwar of "sectarian politics".
The Scottish Labour leader rubbished that claim and called Farage a "pathetic, poisonous little man".
His party's last by-election victory in the area – in the 2023 Rutherglen and Hamilton West vote – proved to be a springboard to success in the following year's general election.
Sarwar will now be hoping for a similar boost ahead of the Scottish Parliament election.
