With 98% of votes counted, President Lula's former cabinet chief has 47% with Jose Serra trailing on 33%.
The two will contest a run-off vote in four weeks' time.
A strong showing by the Green Party candidate, Marina Silva, who polled 19%, may have cost Ms Rousseff a first-round win.
"We can confirm there will be a second round in the presidential elections," Ricardo Lewandowski, the president of the Supreme Electoral Tribunal, told reporters in Brasilia late on Sunday.
Workers Party candidate Dilma Rousseff is the favoured successor to President Luiz Inacio Lula da Silva, who has completed two terms, and cannot run for a third.
"We are warriors, and we are accustomed to challenges," she said in a speech in Brasilia after the result was announced. "We do well in second rounds."
Ms Rousseff was the front runner for much of the campaign and benefited from Lula's widespread popularity and the country's booming economy.
Many analysts believe a scandal involving her directly would be the only scenario under which she could lose a runoff.
Read more: Rousseff falls short of outright win in Brazil election
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