The 78-year-old cardinal, a staunch conservative who has been the Vatican’s doctrinal enforcer, will take the name Benedict XVI, the Vatican announced.
A delirious crowd of around 100,000 cheered and waved wildly as Ratzinger, the 265th pontiff in the Church’s 2,000-year history, smiled and acknowledged the applause from the curtain-draped balcony of Saint Peter’s basilica.
His first words were met by a huge ovation.
"Dear brothers and sisters, after the great Pope John Paul II, the cardinals have elected me, a simple and humble laborer in the vineyard of the Lord," he said, paying tribute to his immediate predecessor, adding, "I console myself with the fact that the Lord knows how to work and act, even with insufficient tools, and above all I trust in your prayers, in the joy of the resurrected Lord, faithful in his permanent aid. Let’s go forward, the Lord will help us, and Mary, his most holy mother, is on our side."
The announcement that the 115 cardinals sequestered inside the Sistine had chosen a new pontiff on only the second day of their conclave came when white smoke billowed out of a chimney atop the Vatican.
It sent the waiting thousands on the square into raptures, but it was not until another agonizing wait of more than 10 minutes that the bells pealed to confirm the election.
Within no time, other bells began answering back all over Rome.
Sister Lydia, a nun, jumped up and down on a chair clapping in uncontrolled excitement. "I prayed for a new pope today at the tomb of the Holy Father (the late John Paul II) and now we have one," she beamed.
Eight-year-old Pierfrancesco, also standing on a chair to get a good view, screamed to his mother on a cellphone "Mama, we have a pope, we have a pope!"
"We have a father again," said Zambian nun Sister Prisca. "Can you imagine? John Paul II told us to look to the future in hope, and now we have this new pope."
The election by a two-thirds majority came in a fourth round of voting that had begun when the 115 cardinals sequestered themselves into the chapel late Monday for their conclave.
Ratzinger now has the onerous burden of guiding the Church into a new era fraught with moral dilemmas and dissension over a host of issues ranging from emptying pews to contraception and celibacy.
A close confidant of John Paul II, he shared his conservative views.
His hardline approach, nationality and age had all been seen as handicaps, according to many Vatican watchers, but what was never doubted was his power and influence.
Born on April 16, 1927, in Marktlam Inn in the southern German state of Bavaria, Ratzinger was ordained into the priesthood in 1951, before becoming the archbishop of Munich in March 1977.