The result will have major implications for Europe as it struggles to emerge from a financial crisis and for France, the eurozone's second-largest economy and a nuclear-armed permanent member of the UN Security Council.
Hollande won the vote with about 52 per cent, according to several estimates from polling firms based on ballot samples, becoming France's first Socialist President since Francois Mitterrand left office in 1995.
Joyful crowds gathered in Hollande's adopted hometown of Tulle and Paris to celebrate his victory. "We are rid of a poison that was blighting our society. A normal President! It gives us a lot to dream about," said Didier Stephan, a 70-year-old artist who was among throngs of supporters at Paris's Place de la Bastille. Even before polls closed and broadcasters released estimates, supporters were chanting "President Hollande!" and "We Won!" at the iconic square.
Sarkozy urged leaders of his right-wing UMP party to remain united after his defeat, but warned he would not lead it into June's parliamentary elections, according to political sources present at a meeting at his headquarters.
Hollande led in opinion polls throughout the campaign and won the April 22 first round with 28.6 per cent to Sarkozy's 27.2 per cent making the right-winger the first-ever incumbent to lose in the first round. Grey skies and rain showers greeted voters across much of France, but turnout was high, hitting 71.96 per cent at 5 pm (local time) according to the interior ministry figures. More than 46 million people were eligible to vote.
In Greece, a parliamentary vote yesterday was seen as critical to the country's prospects for pulling out of a deep financial crisis felt in world markets.
A state election in Germany and local elections in Italy were seen as tests of support for the national governments' policies.
In France, with 95 per cent of the vote counted, official results showed Hollande with 51.6 per cent of the vote compared with Sarkozy's 48.4 per cent, the Interior Ministry said.
The turnout was a strong 81 per cent. "Too many divisions, too many wounds, too many breakdowns and divides have separated our fellow citizens. This is over now," Hollande said in his victory speech, alluding to the divisive Sarkozy presidency.
"The foremost duty of the president of the Republic is to unite ... in order to face the challenges that await us."
Those challenges are legion and begin with Europe's debt crisis.
Hollande has said his first act after the election will be to write a letter to other European leaders calling for a renegotiation of a budget-trimming treaty aimed at bringing the continent's economies closer together.
Hollande wants to allow for government-funded stimulus programs in hopes of restarting growth, arguing that debts will only get worse if Europe's economies don't start growing again. Sarkozy and Germany's Angela Merkel spearheaded the cost-cutting treaty, and many have worried over potential conflict within the Franco-German "couple" that underpins Europe's post-war unity.