With 10% of the votes so far counted on Monday, Susilo, Megawati's one-time security minister, had taken 59%, the election commission said. Megawati had 41%.
About 151 million people were registered to vote in Indonesia, the world's fourth most populous country and the most populous Muslim country.
In a first-round election among five candidates in July, the initial returns proved a fairly accurate indication of the final outcome.
Although first results are in, a full count will take weeks.
The run-off between Susilo and Megawati in Indonesia's first direct presidential ballot caps a turbulent and bloody six years since former president Suharto stepped down in 1998.
"I'm quite confident and I have the reason to believe that I could win," Susilo said at his home on the outskirts of the capital Jakarta before the polls closed.
Security was high for Monday's poll, which comes days after a bomb attack killed nine people outside the Australian embassy in Jakarta.
President Megawati has managed
to win only 43% of the vote so far
But the third major election this year in the archipelago of 18,000 islands was expected to pass without trouble, marking another step forward for a country that has often witnessed turbulent transfers of power.
"According to reports that I received this morning, there have been no hitches in this presidential election. Everything went smoothly," said Home Affairs Minister Hari Sabarno.
Double the support
Susilo is widely expected to sweep the election, having consistently scored nearly double the support for Megawati in opinion polls taken since a 5 July first-round vote that saw the former general emerge as frontrunner.
Megawati has lost support among
the country's poor
With little to distinguish the candidates' broad policies on economic reform, tackling corruption, and improving security, the presidential race has largely become a personality contest favouring Susilo.
The retired general was among the first to vote on Monday at a polling station in his village of Cikeas, south of Jakarta.
"With the assumption that there will be no violations in the counting of the ballots, I do believe, God willing, that I can win this election," he said after casting his vote.
At ease in front of the camera, Susilo has shown himself a smooth operator in public, endearing him to many in the country where most people survive on less than two dollars a day.
In contrast, Megawati has been struggling to shake off a reputation as an aloof and uncaring leader, losing support among the country's impoverished rural people.
Suharto has escaped trial for
graft because of ill health
Analysts say Susilo's pedigree as a former military man, who led operations to capture Islamists blamed for the October 2002 Bali bombings and an August 2003 strike on Jakarta's Marriott hotel, may also help his prospects.
But they warn Megawati - daughter of Indonesia's founding president - cannot be written off, particularly after the endorsement of a powerful four-party political alliance headed by Suharto's former party, Golkar.
Among voters turning out on Monday was a frail Suharto supported by a walking cane and family members, who visited a polling station in a Jakarta suburb.
The 83-year-old former president, who has escaped trial for graft because of ill health, has lived quietly at home since stepping down in May 1998 amid a crippling economic crisis and massive student demonstrations.