The tight race pits Evo Morales, 46, a leftist coca farmer who would become Bolivia's first Indian president, against Jorge Quiroga, 45, a conservative former president.
In La Paz, the Bolivian capital, and other cities nationwide, voting began on Sunday under heavy police guard.
Hundreds of international monitors, including a group from the Organisation of American States, made it one of the most closely watched elections in the country's history.
In the sprawling city of El Alto perched on a mountaintop overlooking La Paz, elderly men and Indian women in bowler hats trudged by the hundreds down mountain roads to polling stations.
Morales, who holds a slight lead in the polls, returned to his jungle valley seat of Catorce de Septiembre to cast his vote.
The valley has previously been the setting for deadly clashes between coca-leaf farmers and the US-backed military intent on eradicating their crops.
Morales has vowed to reverse US-backed efforts to eradicate coca fields, and counts Cuba's Fidel Castro and Venezuela's Hugo Chavez among his friends. His election would follow wins by leftists in Brazil, Argentina, Venezuela and Uruguay.
The Aymara Indian street activist has accused the US Embassy and Bolivia's political establishment of mounting a "dirty war" against him.
Aymara and Quechua Indians make up a majority of the nation's population, followed by people of mixed Spanish and Indian descent.
Jorge 'Tuto' Quiroga
Wants to keep Bolivia on free-market track, improve infrastructure and health care, get external debt forgiven and continue Bolivia's Washington-backed coca eradication policy.
Wants to bring natural gas reserves under greater state control, increase rights for Indians, fight corruption and reverse Washington-backed policy of coca-leaf eradication.
"Happily, in Bolivia the people are rebellious in facing up to the empire," Morales said, referring to the United States, in an Associated Press interview.
"Despite their accusations, if they want to talk to this 'drug trafficker,' with this 'narcoterrorist,' I don't have any problem. We're always open to dialogue and will always seek diplomacy with any country."
Morales moderated his tone on the eve the election, reassuring the business community that he will protect property rights and fight drug trafficking.
Quiroga, who has promised to continue free-market policies and the war on coca, which is used to make cocaine suggested that his rival has made vague promises that won't be honoured.
"Don't be fooled," Quiroga said on Thursday in the wealthy city of Santa Cruz, his power base. "With your support we are going to show that the future of Bolivia is good and prosperous."
Bolivia's congress may ultimately
decide the elections
While polls say Morales holds a slight lead over Quiroga, neither is expected to win a majority of the vote. There are six other candidates on the ballot.
In that case, the newly elected congress will choose the president between the top two vote-getters in mid-January. The congress is often pressured, but is not required, to choose the person who received the most votes.
In the five presidential elections since 1985, congress has passed over the first-place candidate twice.
Some 3.67 million of Bolivia's 8.5 million population were registered to take part in the vote.