Her coalition government will rule Europe's biggest economy for the next four years.
The chancellor won the parliament election with 462 votes in favor, with 150 voting against and nine abstentions. Merkel was formally appointed by German President Joachim Gauck at the president's official residence and headed back to the parliament to be sworn into office, thus becoming the country's third post-war chancellor to win a third term.
Merkel will address the parliament on Wednesday and then travel to Paris to meet President Francois Hollande in her first foreign visit of the new term.
Cabinet ministers of the new coalition government, formed by Merkel's Christian Democratic Union (CDU), its Bavarian sister party Christian Social Union (CSU), and the Social Democrats (SPD), were also formally appointed and took the oath in the parliament.
Prominent members of the new cabinet include Ursula von der Leyen, the country's first female defence minister, and finance minister Wolfgang Schaeuble, who joined hands with the chancellor in Germany's efforts to fight the eurozone debt crisis.
SPD party leader Sigmar Gabriel became minister of a new Economy and Energy Ministry and take responsibility for Germany's ambitious plan of energy transformation from nuclear power to green energy. SPD veteran Frank-Walter Steinmeier is back as the foreign minister. He has served in that post from 2005-2009 under Merkel.
The new cabinet put an end to more than two months of political limbo after the Sept. 22 elections when Merkel's bloc, the biggest winner with 41.5 percent of votes, fell short of an absolute majority. The SPD took 25.7 percent of the votes.
The grand coalition between Merkel's conservatives and the SPD, as in Merkel's 2005-2009 first term, is supported by most Germans, as a poll for public broadcaster ZDF published Friday showed that 49 percent of Germans welcome a grand coalition while 33 percent opposed it.
However, the coalition government was only able to become a reality last week as a majority of the SPD members backed the proposed coalition deal in a binding vote within the party. Some SPD members harbor skepticism on becoming Merkel's junior partner again. The party suffered a electoral defeat in 2009 after serving as Merkel's junior coalition party in her first term.