The victory will give Renzi's centre-left party a leading voice in Europe and bolster his ambitious reform programme.
The landslide gives the party the highest number of MEPs among Europe's leftists and was one of the best showings for any European leader - a far higher result than the 25.4 percent it scored in a 2013 general election.
"This is Italy's moment," Renzi said at a press conference.
"Italy is stronger than the fears that traverse it and it has decided to make a difference in Europe," he said, adding that Italy could now be "a leader, not a follower".
Investors reacted enthusiastically with stocks in Milan leading European bourses by surging more than 3.0 percent and borrowing costs falling on the markets to 2.99 percent on 10-year sovereign bonds, indicating greater confidence.
"This is undoubtedly positive news, particularly in terms of the boost it might provide to the reform process," said Chiara Corsa, an economist at Italy's top bank, UniCredit.
Renzi has promised to slim down Italy's bloated bureaucracy, overhaul labour laws, create a more efficient justice system and enact an ambitious privatisation plan.
The vote was also being seen as a legitimacy test for Renzi's unelected government, which was set up just three months ago after he ousted his predecessor Enrico Letta by engineering an ouster through the Democratic Party.
There was palpable excitement in the streets of Rome.
"I am kind of proud that Italy has saved Europe from this anti-European tendency and these far-right groups," said Lorenzo, a computer technician.
"Italy will allow us to believe in Europe again and go forward together," he added.
Turnout was 58.7 percent - one of the highest in Europe.
Opinion polls had indicated the result would be a close run between Renzi and former comedian Beppe Grillo's Five Star Movement, which has campaigned for a referendum on the euro.
'Taking the lead'
The outcome was all the more surprising as governing parties were generally punished across Europe with the exception of German Chancellor Angela Merkel's CDU/CSU which still scored lower than in the most recent election.
In the pro-European camp "Renzi will play an important role going forward. Italy really has a chance of taking the lead here," said Giovanni Orsina, a history and politics professor at Luiss-Guido Carli University in Rome.
The Democratic Party will be contributing 31 lawmakers to the European Parliament, beating the 27 from Germany's SPD and only a short way behind the 34 German centre-rightists.
Stefano Folli from Il Sole 24 Ore business daily said Renzi had been presented with "a truly historic opportunity".
"For the first time, a leader of the centre-left has the power and the means to reform the country," he said.
Folli compared the score to Berlusconi's start in politics in the early 1990s when he beat the left with promises to modernise Italy but then failed spectacularly to deliver.
Folli said the latest vote showed the 77-year-old billionaire tycoon's "personal star has been extinguished".
Renzi had portrayed the contest with Grillo, who won 25.5 percent in Italy's 2013 elections with a campaign against political perks, as "a match between hope and anger".
Grillo himself later sought to reassure his supporters with a video in which he told them that "time is on our side".
In the video, he also took an indigestion tablet - the same one that he had vowed his rivals would have to swallow in one of his fiery tirades during the election campaign.
Analysts said that Grillo's party had lost support but had also cemented its opposition credentials and would bring a batch of 17 MEPs to Brussels for the first time.
The anti-euro Northern League party, which has promised to ally itself with France's surging National Front, came fourth in the vote with a higher than expected 6.2 percent.
It was followed with 4.4 percent by the New Centre-Right, a junior coalition partner in Renzi's government, and with 4.0 percent by the far-left "Other Europe" party.