If you are working in a context where the basic facts about the real numbers are already known, then you can simply apply those; given any rational upper bound $u$ to $S$, there exists another rational number $u'$ satisfying $\sqrt{2} < u' < u$, and thus $u'$ is a smaller upper bound.
Since $u$ was arbitrary, no rational upper bound can be a least upper bound.
When not working in such a context, coming up with a well-motivated proof isn't particularly enlightening (better to learn the ideas in the context of doing real analysis rather than when working under restricted conditions); the following trick derived from Newton's method to find a root of $x^2 - 2$ is instead used:
Define a function on nonzero rationals
$$ f(x) = \frac{x + \frac{2}{x}}{2} $$
If $x^ 2> 2$, then it's pretty easy to see that $f(x) < x$. Furthermore, $f$ has the distinctive property that
$$ f(x)^2 - 2 = \frac{(x^2-2)^2}{(2x)^2} $$
which, among other things, shows that you always have $f(x)^2 > 2$ when $x$ is a nonzero rational.
Note, given my comment above, this argument is meant to be one that is easily verified; it is not intended to be particularly enlightening, to be a demonstration of the tools you'll be learning, or to be something you'd be expected to be able to come up with on your own.