The first two attempts to unseat Chen failed due poor support from the Nationalist and People First parties.
On November 3, Wu Shu-chen, Chen's wife, was charged with fraud involving $451,000 allegedly embezzled from her husband's state affairs fund.
A prosecutor said he had sufficient evidence to charge Chen, if not for his presidential immunity. Chen's term expires in 2008.
Several aides were also charged the same day for misusing the funds.
The action against Chen was preceded by street protests in September and October demanding his resignation.
Friday's vote followed two days of debate in parliament punctuated by shouts and waving of banners.
Yang Cheng Chin-ling of the People First party said before voting took place: "This is a historic moment. Do we want to support graft and corruption? I ask you legislators, why do you support graft and corruption?"
Opposition members of parliament have been urging Taiwan citizens to vote out the ruling party.
This week, Ma Ying-jeou, the chairman of the Nationalist party, was called for questioning over the use of party assets.
The mayoral elections in Taiwan's two biggest cities are scheduled for December 9 and television polls show the ruling party candidates trailing in both races.