The new pope, a German cardinal known for his conservative views, appeared on St Peter's balcony after his name was announced from the same venue on Tuesday evening.
Earlier, white smoke was seen coming out of the chimney atop the Vatican City's Sistine Chapel - signalling that the College of Cardinals had finally broken the papal election stalemate.
The Italian newspaper Corriere della Sera had said: "The conclave is looking for agreement after the Martini-Ratzinger duel," referring to the leaders of two opposing camps apparently led by moderate Italian Carlo Maria Martini and Ratzinger.
Until the announcement was made, the cardinals were deadlocked in the search for a new pope as they reconvened for new rounds of voting to elect the man they want to guide the Roman Catholic Church into a new era.
Two rounds of voting produced only black smoke from the chimney, signalling they had failed to agree on who should be the 265th pontiff in succession to John Paul II.
The conclave was conducted under utmost secrecy and there was no word as to how close or far the cardinals were from agreement.
The black smoke may have been
a sign of two opposing groups
As soon as they reached a two-thirds majority consensus, however, white smoke was to billow and the bells of Saint Peter's basilica were to ring out to signal a new spiritual leader of the world's estimated 1.1 billion Catholics.
For a brief moment, the smoke which emerged shortly before midday appeared white, and the crowd of thousands waiting on St Peter's Square surged forward, hoping to be the first to catch a glimpse of the new pontiff.
At one point even Vatican television thought the plumes were white. "It's white, it's white smoke!" the announcer declared.
But it soon turned black. "We really thought we had it," Brother Eldi, a monk from Brazil, said after rushing towards the basilica where a balcony has already been hung with purple curtains in readiness for the next pope's first public appearance.
Vatican television said it was likely the inconclusive ballots were burned in two batches, one for each unsuccessful round.
With a first ballot late on Monday also producing black smoke, most observers believed that two opposing conservative and liberal blocs among the cardinals are so far cancelling each other out.
Brother Leonel, a monk from Nicaragua, was content with the deadlock. "It reflects the fact that God works slowly but surely," he said. "This too is the wisdom of the Church, that it doesn't rush things."
"[The deadlock] reflects the fact that God works slowly but surely"
Vendors seemed to have latched on to public demand: rather than rosaries and the usual trinkets, many were selling binoculars.
Many of the pilgrims, clergy, ordinary tourists and Romans said they would be back later in the day when another smoke signal is expected.
Vatican watchers, rebuffed by the hi-tech secrecy, could only speculate.
Whoever is elected pope will take the Church into a new era at a time when Roman Catholicism faces stern doctrinal and moral dilemmas, with conservatives keen to uphold the late pope's strict stance on abortion, contraception, the celibacy of priests and the ordination of women.
But many in the Church are pressing for a relaxation of certain strictures, notably to allow condoms in the fight against Aids but also on issues such as allowing clerics to marry to encourage more to join the dwindling priesthood.