Justin Trudeau's Liberal Party has retained power but a narrow election win means he is forced to lead a minority government as prime minister.
His party will claim the most seats in parliament but their second term will be much harder, relying on other parties to pass legislation.
The Liberals are expected to claim 156 seats, 14 short of a majority.
His centre-right Conservative rivals are heading for 122 seats, a marked increase from the 95 it held before.
Watch Justin Trudeau's victory speech: "Canadians voted in favour of a progressive agenda" -
Monday night's results could be good news for the country's left-leaning New Democratic Party (NDP) and its leader Jagmeet Singh, who could be kingmaker.
This federal election was seen as a referendum on Mr Trudeau, who endured a bumpy first term, tainted by scandal.
"You did it my friends. Congratulations!" he told cheering supporters in Montreal.
Turning to address those across the country who voted for him, he said: "Thank you for having faith in us to move our country in the right direction."
And to those who did not back him, he promised his party would govern for everyone.
His weakened grip on power is being seen as a rebuke of his record but the result is bitterly disappointing for Conservative leader Andrew Scheer.
His party is expected to win the popular vote but failed to translate that support into seats.
Liberal supporters cheer as election results begin to come in
But while the Liberals did not repeat their 2015 landslide, they still made a strong showing in the Maritimes and have a tight grip across Ontario - Canada's most populous province.
A key minister, Ralph Goodale, lost his seat in Regina, Saskatchewan after 26 years in Parliament.
Mr Goodale's loss is one of many for the Liberals across the Prairie region. If current predictions hold, there will be no Liberal-held ridings between Winnipeg and the British Columbia Lower Mainland.
But the bigger disappointment will be felt by Mr Scheer, who pitched himself to Canadians as the candidate speaking up for issues which directly affect voters' lives and wallets.
But instead he faced scrutiny over where the Conservative Party stood on gay marriage and abortion.
Minority governments are not uncommon in Canada - there have been three in the past 15 years.
A coalition government, however, is rare. It was last attempted in 2008 by the Liberals and NDP, but was disbanded when then-Prime Minister Stephen Harper, a Conservative, prorogued Parliament.
How has election night unfolded so far?
Early returns pointed to trouble for Mr Trudeau. His sweep of the Atlantic region was quickly upended, with Conservative and New Democratic wins in the east.
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