The 48-year-old anti-EU and anti-immigration "candidate of the people" scored between 33.9 and 35 percent of the vote, projections showed -- double her father Jean-Marie Le Pen's score in the 2002 election.
But her score fell far short of forecasts, despite the stars appearing to be aligned in her favour after the victory of fellow nationalist Donald Trump in the US election and Britain's vote to leave the EU.
An unbowed Le Pen immediately announced plans to undertake "a profound transformation" of the FN and to continue the fight between "patriots and globalists" in June's general election.
Her more than 10 million voters -- up from 7.6 million in the first round -- testify to the success of her bid to de-demonise her party by purging it of overt anti-Semitism and racism.
But centrist Emmanuel Macron's decisive win showed continuing strong resistance to her policies, with Le Pen's proposal to dump the euro acting as a red flag to many voters.
'The French nation'
Tapping into fury with the failures of mainstream parties to address France's deep economic malaise, she presented the election as a chance to save "the French nation and civilisation".
But her proposals to leave the euro and hold a referendum on EU membership rang alarm bells in France and beyond, with analysts fearing it could bring down the curtain on the union after Brexit.
A trained lawyer who ironically started out defending illegal immigrants facing deportation, Le Pen brought her sharp tongue to a blistering final debate between the two rivals on Wednesday but floundered when pressed by Macron on her economic proposals.
'Party of patriots'
Le Pen had taken steady steps to rehabilitate the FN as a "party of patriots" after taking the helm in 2011.
That meant breaking with her father, whom she kicked out of the party in 2015, a fate that would meet dozens of other FN members caught making anti-Semitic statements.
Revamping the FN's xenophobic ethos into a message of bringing immigration under control served as a dog whistle to far-right partisans while broadening the party's overall appeal.
But the anti-Semitism and revisionism that once defined the FN were never far from the surface.
Le Pen herself said last month that the French are not responsible for an infamous roundup of 13,000 Jews in Paris during World War II by police acting on orders from the Vichy regime.
The candidate is also being probed after tweeting pictures of Islamic State atrocities.
During the campaign she studiously avoided using her tainted family name, and swapped the FN's trademark flame logo for a blue rose, using the slogan "Choose France".
But she never strayed far from the FN's stock themes of immigration and Islamic fundamentalism -- hot-button issues after a string of jihadist attacks in France that have killed more than 230 people since 2015.
"With me there would never have been the migrant terrorists of the Bataclan," she told supporters, referring to the Paris concert hall where dozens were killed in the November 2015 attacks.
'Inelegant and injust'
Her father launched a scathing attack on his daughter on the eve of her election defeat Sunday.
"She has character, she doesn't lack that. But you also need other qualities," Jean-Marie Le Pen told Britain's Sunday Times in an interview, adding that they had not spoken since she kicked him out of the party in 2015 for comments equated to Holocaust denial.
"What she did was a bad thing," he said. "It wasn't fair. It was inelegant and unjust."
Marine Le Pen, a member of the European Parliament since 2004, led the FN to victory in the 2014 EU elections with 25 percent of the vote.
Several investigations hang over the FN and Le Pen's entourage in funding scandals involving the European Parliament.
For now, the FN is not expected to make Le Pen pay for Sunday's loss, despite vocal criticism from within the party.
On whether the FN will keep it in the family, Le Pen's niece Marion Marechal-Le Pen says she has "absolutely no desire" to stand in the next presidential election in 2022.
Rocky early life
Le Pen developed a tough shell after a tumultuous childhood.
When she was eight, a bomb ripped through the Paris apartment building where the family lived, slightly injuring six people but sparing the Le Pens.
Eight years later, her mother Pierrette walked out on her husband and three daughters, sensationally resurfacing shortly afterwards posing nude in Playboy magazine.
"It was a huge shock," Le Pen, who did not see her mother for 15 years, said last year.
Now herself a twice-divorced mother of three, she keeps her private life out of the spotlight, appearing rarely as a couple with her partner, FN vice-president Louis Aliot.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)