South Africa was expected to win the nomination after an independent evaluation report by World Rugby, the sport's international governing body, last month identified the Rainbow Nation -- which hosted the tournament in 1995 -- as the "clear leader" ahead of France and Ireland.
But it is France which will stage the 10th edition of rugby union's most prestigious competition -- a tournament it has staged before, in 2007.
It will be a busy period for France, with the 2023 Rugby World Cup coming a year before Paris hosts the Summer Olympics.
At a meeting in London, Ireland were eliminated in the first round of voting after only receiving eight of 39 votes, with France going on to beat South Africa by 24 votes to 15 in the second round.
Bill Beaumont, World Rugby chairman, offered his congratulations to the winning nation.
"They presented a very strong and comprehensive bid, which clearly resonated with the Council today," he said.
"We had three outstanding host candidates, who raised the bar and overwhelmingly demonstrated that they were all capable of hosting an exceptional Rugby World Cup.
"There was very little to choose between the candidates and this was reflected in the independently-audited evaluation report.
"I would like to pay tribute to Ireland and South Africa for their dedication throughout a rigorous, and transparent process and hope that they will bid again.
"We now look forward to working in partnership with France to deliver what I am sure will be a very successful Rugby World Cup in 2023."
South Africa will not challenge result
Bernard Laporte, president of the French rugby federation (FFR), said the World Cup would be for "all of French rugby."
"The economic impact will be for them," he said. "With the reforms that we have committed, we needed this World Cup."
South Africa said it would not challenge the verdict, with Jurie Roux, chief executive of South Africa Rugby, saying "we now consider the 2023 bidding process closed."
"However, in the feedback sessions I am sure we will be recommending to the World Rugby Council that the verdict of the evaluation committee become binding," he said.
"World Rugby ran an exhaustive and transparent process for 15 months to identify the best host nation, only for the process to go entirely opaque for the past two weeks."
Mark Alexander, president of SA Rugby, said: "We are bitterly disappointed at this decision and would like to apologise to the people and government of South Africa for raising their hopes.
"We did everything in our power to bring the tournament to South Africa and we expected to have that right confirmed today.
"We produced a compelling bid document that earned the unanimous recommendation of the Rugby World Cup Ltd board. That recommendation was questioned last week by rivals, but endorsed a second time by World Rugby last week.
"However, the view of the experts and World Rugby's leadership was overturned by World Rugby Council members, who may have had other factors to take into account.
"We cannot hide our desolation but, for the sake of rugby, we wish the 2023 tournament hosts every success."