Tirole, the second Frenchman to be honoured this year, is "one of the most influential economists of our time," the jury from Sweden's Royal Academy of Sciences in Stockholm said.
"He has made important theoretical research contributions in a number of areas, but most of all he has clarified how to understand and regulate industries with a few powerful firms."
"Many industries are dominated by a small number of large firms or a single monopoly," the jury said of the economist, from Toulouse 1 Capitole University.
"Left unregulated, such markets often produce socially undesirable results – prices higher than those motivated by costs, or unproductive firms that survive by blocking the entry of new and more productive ones."
French President François Hollande expressed his warmest congratulations to Tirole saying it was a proud moment for France, which "highlights the quality of research in the country".
And the country's Prime Minister Manuel Valls was a little more brash pointing out that the country's second win of Nobel season as a slap in the face for those who take pleasure in criticising the embattled nation.
"After Patrick Modiano, another Frenchman reaches the top: congratulations to Jean Tirole," Valls wrote on Twitter after the Nobel economics prize was announced, adding it "really thumbed the nose at French bashing."
Over the phone from France, Tirole told journalists he was honoured to receive the award.
"Thank you, I am so moved," he said, adding that it "feels good" and it was a "big surprise".
"One is never a very good judge of one's own work and so it was not something I was counting on," Tirole told AFP.
Tirole is a French citizen, who was born in 1953 in Troyes, France.
He studied at the Massachusetts Institute of Technology, in the US and now works as the Scientific Director at Institut d’Économie Industrielle at the Toulouse School of Economics in France.
The Academy said: “From the mid-1980s and onwards, Jean Tirole has breathed new life into research on … market failures.
"His analysis of firms with market power provides a unified theory with a strong bearing on central policy questions: how should the government deal with mergers or cartels, and how should it regulate monopolies?”
He will take home 8 million kronor ($1.1 million).
The economics prize is the only Nobel not originally included in Nobel's last will and testament.
It was established in 1968 by the Swedish central bank to celebrate its tricentenary, and first awarded in 1969. The other prizes have been awarded since 1901.
The award of this year's prize to a French national marked a departure from American dominance on the list of laureates.
Over the past decade, 18 out 20 economics prize laureates have been from the United States, including one Israeli-American.
Last year, US scholars Eugene Fama, Lars Peter Hansen and Robert Shiller won for their work on spotting trends in the asset markets.
The economics prize winds up this year's Nobel season, marked the award of the peace prize to 17-year-old Pakistani Malala Yousafzai and India's Kailash Satyarthi, and the literature prize to French writer Patrick Modiano.
The Local's Editor Maddy Savage is on the scene, read our live blog here.