Mr Santos won nearly 51% of votes and saw off his right-wing challenger Oscar Ivan Zuluaga, who had 45%.
Correspondents say the victory will be seen as an endorsement of the president's ongoing peace talks with the left-wing Farc rebel group.
Mr Zuluaga had said he would halt the talks unless the rebels ceased all hostilities.
Mr Santos, 62, will be inaugurated in August for a new four-year term.
"This is the generation of peace. Millions of Colombians have chosen hope over fear," Mr Santos said in an address to supporters at his headquarters.
"Thank you very much, Colombians! Your support means we will have to worker even harder," he said.
Mr Zuluaga, who had won the first round of voting in May by a narrow margin, accepted defeat in a speech to supporters in his headquarters.
He vowed to continue his fight to "defend the life and the liberty" of all Colombians.
He also thanked his political mentor, former president Alvaro Uribe, who will be sworn in as senator in August and is expected to lead the opposition to the government.
Talks in Cuba
With almost all the votes counted electronically, results were announced one hour after polls closed.
There were no reports of major problems or irregularities, says the BBC's Arturo Wallace in Bogota.
Nearly 48% of the 33 million Colombians registered to vote took part in the election.
Despite concerns in Colombia about high crime and unemployment, the campaign focused on the peace negotiations with the Farc, launched by Mr Santos in November 2012.
The talks, which are being held in Cuba, are aimed at ending five decades of conflict.
Mr Santos expects a deal to be signed by the end of the year, with the Farc giving up their armed struggle and joining the legal political process.
Government negotiators and rebel leaders have held several rounds of talks in the Cuban capital, Havana.
They have agreed on three points of the agenda drawn up in 2012 - land reform, future political participation and drug trafficking, which is allegedly the main source of income for the rebels.
Three other points remain to be agreed on - the rights of the victims, disarmament of the rebels and the implementation of the agreement.