The exit polls showed that Spanish-born Hidalgo, 54, was estimated to have won, with 55% of the vote, well ahead of her centre-right rival Nathalie Kosciusko-Morizet.
If her victory is confirmed in a final count Hidalgo will succeed the popular Socialist mayor Bertrand Delanoë, who has run the city since 2001. Last year she told the Guardian that running Paris was "the best elected job that exists".
But her probable triumph was a rare moment for celebration in what was a dismal evening for Hollande, whose popularity was already at rock bottom even before Sunday's vote, and his Socialist (PS) government. Elsewhere, the Front National appeared to have once again punched above its real electoral weight in what may well turn out to have been a protest vote.
The party's charismatic president, Marine Le Pen, said the results marked a "new step for the FN" and said she hoped to translate its success into seats in the European elections in May.
"The Front National has upset the traditional UMP-PS duo. From now on they will have to count on a third great political force in our country," Le Pen said.
The revival of the FN as the Socialists struggle takes the far-right party back to levels last seen in 2002 when far-right presidential candidate Jean-Marie Le Pen knocked out the Socialist candidate in the first round of the presidential elections.
The FN took the towns of Béziers, where FN candidate Robert Ménard, former head of Reporters Sans Frontiers, obtained more than 47% of the vote, and Fréjus, but lost the symbolic city of Avignon, where the FN candidate had led the first-round vote.
Most of the FN's successes were in the east and west of the country in areas with high unemployment and immigration.
If there was any small consolation for the president and his administration, it was that while the centre-right UMP emerged overall winners, it was that the FN had not done as well as results of first-round voting last Sunday had suggested.
In the rest of the country, French voters stayed away from polling stations in record numbers for the second round of local elections.
The 38% rate of abstention in the second round of the election was seen as a direct message of disillusion with the country's ruling class, particularly the struggling Socialist government headed by Hollande.
Among the most symbolic losses for the governing Socialists were those of the town of Limoges, which the left had held since 1912, Saint Etienne, which fell to a UMP candidate, Belfort, which went to the right, and Quimper in Brittany, which elected an UMP mayor.
Najat Vallaud-Belkacem, spokesperson for the government, was the first to admit: "The results are bad. We hear the message that has been sent."
Jean-Francois Copé of the centre-right UMP said the local elections were an overwhelming success for his opposition party. "It's a blue wave … the first major victory for the UP in a local election,' he said.
There were fears that the high level of abstentions among voters would play in favour of the FN. However, the first estimates showed an increase in support for the mainstream right opposition UMP party, while support for the far-right, which has undoubtedly increased, was not as great as had been suggested by the first-round vote.
Local elections are traditionally seen as a way for the electorate to express their dissatisfaction with the government of the day.
Around 30,000 of the 36,000 municipalities in France had already elected their mayors in the first round. This included one FN mayor elected outright. Only in areas where no party obtained more than 50% of the vote did the election go to a second round.
However, in those 6,000 areas, the FN has a strong showing, particularly in the south of France. In Avignon, one of the towns in which the FN led after the first round, the Socialist party candidate won the seat.
The abstention level in the first round last Sunday was 36.45%, already high and an indication of voter disaffection with the mainstream political parties ahead of this weekend's poll.
Nonna Mayer, research director at the Centre of European Studies at Sciences Po, said: "They can't be stopped. It's the first time the Front National has organised such an electoral dynamic in local elections.
Mayer said the FN was benefiting from a "give them a go" attitude in France. She added: "Voters are so tired of the economic situation and they have the feeling that the left and the right have been unable to find a solution … they say we have tried everything, why not try the Front National."
First estimates suggested 49% of voters had supported centre right UMP candidates, 42% Socialist party candidates, and 9% the Front National, a substantial increase in support for the far-right.
Ségolène Royal, a former presidential candidate, said the results were a "severe warning" for the government.
"It's the party system that has been punished," she said. "There are a number of French people who have had enough of the system. They want democracy.
"The French have not seen the results of the efforts we have demanded of them."
She added: "I hope this defeat will awaken the team in power."
French finance minister Pierre Moscovici admitted: "It's difficult to reform a country like France. This is undoubtedly a defeat for us."
