At an elaborate signing ceremony at Lisbon's grandiose Jeronimos Monastery, leaders said the treaty would open a new chapter in EU history by giving it a more robust foreign policy and more democracy in decision-making.
The treaty replaces an ambitious constitution that was scrapped after French and Dutch voters rejected it in 2005.
"This was the European project that many generations dreamt of and others before us championed, with a vision of the future," Portuguese Prime Minister Jose Socrates said at the ceremony.
"Europe was blocked, without knowing how to move forward and we found the solution with this treaty," French President Nicolas Sarkozy told reporters.
The treaty is a toned down version of the constitution and EU leaders hope it will be effective in adapting the bloc's structures to having 27 members, after it opened its doors to 12 mostly ex-communist states in 2004 and 2007.
"For the first time, the countries that were once divided by a totalitarian curtain, are now united in support of a common treaty that they had themselves negotiated," European Commission President Jose Manuel Barroso told the leaders.
"It is the treaty of an enlarged Europe from the Mediterranean to the Baltic, from the Atlantic Ocean to the Black Sea," he said.
The treaty, among other things means Malta will have a sixth seat allocated to it in the European Parliament.