The popular Akihito was the first monarch to take the Chrysanthemum Throne under a post-war constitution that defines the emperor as a symbol of the people without political power.
His father, Hirohito, in whose name Japanese troops fought World War Two, was considered a living deity until after Japan's defeat in 1945, when he renounced his divinity.
"To the people who accepted and supported me as a symbol, I express my heartfelt thanks," Akihito, wearing a Western-style morning coat, said at a brief abdication ceremony in the Imperial Palace's Matsu no ma, or Hall of Pine.
"Together with the empress, I hope from my heart that the new Reiwa era that begins tomorrow will be peaceful and fruitful, and pray for the peace and happiness of our country and the people of the world," said a solemn Akihito, referring to the new imperial era.
Standing on a white dais flanked by Empress Michiko, who wore a long white and grey dress, Akihito bowed after he spoke.
About 300 people attended the ceremony broadcast live on television. They included Prime Minister Shinzo Abe, Crown Prince Naruhito and Crown Princess Masako, as well as the heads of both houses of parliament and Supreme Court justices.
Akihito, together with Michiko, his wife of 60 years and the first commoner to marry an imperial heir, carved out an active role as a symbol of reconciliation, peace and democracy.
Akihito, who has had treatment for prostate cancer and heart surgery, said in a televised address in 2016 that he feared his age would make it hard for him to carry out his duties fully.
At the start of the ceremony, chamberlains carried the state and privy seals into the hall along with two of Japan's "Three Sacred Treasures" - a sword and a jewel - which together with a mirror are symbols of the throne. They are said to originate in ancient mythology.
"While keeping in our hearts the path that the emperor has walked, we will make utmost efforts to create a bright future for a proud Japan that is full of peace and hope," Abe said ahead of the emperor's remarks.
At the end of the ceremony, Akihito descended from the dais and took Michiko's hand as she stepped down. Before exiting the room, he paused, turned toward the audience and bowed again.
Earlier, Akihito performed a ritual announcement of his abdication in three palace sanctuaries, including one honouring the sun goddess Amaterasu Omikami, from whom mythology says the imperial line is descended, and two others for departed emperors and Shinto gods.
NHK television showed Akihito, wearing a dark orange traditional robe and black headdress, walking slowly into the first sanctuary with a white-robed courtier holding the train and another carrying a sword. Naruhito conducted a similar ceremony.
NEW ERA
Crowds gathered outside the Palace, a 115-hectare compound in the heart of Tokyo protected by moats and walls, that is home to the emperor and empress. Security was tight with several thousand police officers on duty in Tokyo, media reports said.
"I think the emperor is loved by the people. His image is one of encouraging the people, such as after disasters, and being close to the people," said Morio Miyamoto, 48.
"I hope the next emperor will, like the Heisei emperor, be close to the people in the same way," he said.
The Heisei imperial era, which began on Jan. 8, 1989 after Akihito inherited the throne, saw economic stagnation, natural disasters and rapid technological change.
Not everyone was excited by the imperial changeover.
"It's a normal day. That kind of political stuff is irrelevant to us ordinary people," said Masato Saito, a 40-year-old construction worker.
"As long as they make our lives easy to live, that's all I care."
U.S. President Donald Trump and First Lady Melania offered their "heartfelt appreciation" to the royal pair in a statement.
Naruhito, 59, will inherit the throne in ceremonies on Wednesday. He studied at Oxford and together with his Harvard-educated wife, Masako, will give the monarchy a cosmopolitan flavour.
Akihito officially remains emperor until midnight, when the new Reiwa era, meaning "beautiful harmony", begins. Informal countdown events for the start of the new era were scheduled for Tuesday evening.
Japanese traditionally refer to the date by the era name, or "gengo", a system originally imported from China, on documents, calendars and coins but many people also use the Western calendar.