Sudan's President Omar al-Bashir and UN Secretary General Ban Ki-moon are among international dignitaries attending celebrations in the capital, Juba.
Sudan earlier became the first state to officially recognise its new neighbour.
The south's independence follows decades of conflict with the north in which some 1.5 million people died.
Celebrations in Juba began at midnight (2100 GMT). A countdown clock in the city centre reached zero and the new national anthem was played on television.
South Sudan became the 193rd country recognised by the UN and the 54th UN member state in Africa.
A formal independence ceremony took place on July 9. The Speaker of the South Sudan Legislative Assembly, James Wani Igga, read out the Proclamation of the Independence of South Sudan.
Under the Comprehensive Peace Agreement, a referendum was held on independence, which was favoured by more than 99% of voters.
The new country is rich in oil, but one of the least developed countries in the world, where one in seven children dies before the age of five.
A new law passed by the National Assembly in Khartoum has withdrawn Sudanese citizenship from all southerners.
The UN refugee agency (UNCHR), has urged both governments to prevent statelessness