At the service in St Peter's Basilica, the 77-year-old leader of the world's Catholics said local shepherds were the first to witness the holy birth "because they were among the last, the outcast".
The Argentine pope, who was elected this year after his predecessor Benedict XVI's momentous resignation, also called on Catholic believers to open their hearts and struggle against the "spirit of darkness".
"If our heart is closed, if we are dominated by pride, deceit, self-seeking, then darkness falls within us," said Francis, who has shaken up the papacy with his humble style and has promised to reform the Vatican.
Francis has repeatedly warned about rising rates of anti-Christian violence, and he spoke at a time when Christians from ancient communities in Syria are fleeing its civil war. Others are meanwhile struggling to rebuild after the devastating typhoon that struck the Philippines this year.
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Pope Francis holds the unveiled baby Jesus during a Christmas eve mass at St Peter's Basilica. (AFP)
In Europe, Christmas Eve mass in a church nestled in the French Alps came to an abrupt end Tuesday when part of the ceiling fell down on the priest's head. The discovery of an unexploded World War II bomb in the Belgian city of Ghent also spoiled celebrations.
The Vatican unveiled a traditional Nativity scene in St Peter's Square by Naples artisan Antonio Cantone, who named it after Francis and the mediaeval Italian saint who has inspired him, St Francis of Assisi.
Cantone said the scene was intended to highlight the role of ordinary people in witnessing Jesus's birth -- a homage to the "simplicity" shown by Pope Francis.
Pope Francis blesses the crowd at the end of a Christmas eve mass at St Peter's Basilica to mark the nativity of Jesus Christ at the Vatican. (AFP)
In the West Bank town of Bethlehem, Jerusalem's Latin patriarch Fuad Twal celebrated a midnight mass attended by Palestinian president Mahmud Abbas.
Thousands of pilgrims and tourists made their way past Israel's controversial separation wall to reach the Palestinian hilltop town, where snow remains on the ground from a rare winter blizzard this month.
A giant Santa was set up in Manger Square, outside the centuries-old Church of the Nativity, where a candle-lit grotto marks the spot where Christians believe the Virgin Mary gave birth to Jesus.
People play a nativity scene during the unveiling ceremony of the crib in St Peter's Square at the Vatican on Christmas eve. (AFP)
In a homily delivered at the Christmas Eve mass, Twal called for a "just and equitable solution" to the decades-old Israeli-Palestinian conflict.
For Christians "the answer lies neither in emigration nor in closing in on ourselves. It consists in staying here," said the 73-year-old patriarch.
"From this holy place, we remember all the adversities in our world: from civil wars in Africa to the typhoon in the Philippines, the difficult situation in Egypt and in Iraq, the tragedy playing out in Syria," he said.
Watch: Pope Francis hold his first Christmas eve mass in the Vatican
An estimated 126,000 people have been killed in Syria, where a brutal crackdown on pro-democracy protests ignited a full-blown civil war with no end in sight.
Among the millions displaced are thousands of residents of the historic Christian village of Maalula, many of whom still speak the ancient Aramaic of Jesus.
Juliana, a 22-year-old Maalula refugee in Damascus, recalled past Christmas holidays at home as "joyful".
"We would decorate the Christmas tree, and friends and relatives would get together for midnight mass.
"This year, we will attend mass of course but there won't be any Christmas tree or manger. We are refugees now," she said.
Bishop Malki Murad conducts the midnight Christmas Mass at the Saint Afram Syrian Orthodox Church in Amman, Jordan. (AP)
Hundreds of Syrian and Iraqi refugees along with Jordanian Christians attend the midnight Mass and pray for peace in their countries. (AP)
Filipinos find cheer amid storm's ruins
In the Philippines it was not war but a devastating act of nature, Super Typhoon Haiyan, which flattened entire towns and left nearly 8,000 people dead or missing.
Filipinos who survived the disaster defiantly celebrated Christmas in their ruined communities, roasting hogs and filling churches to overflowing.
"Nothing can stop us from welcoming Christmas even though we have lost our home," 63-year-old Ellen Miano said in Tacloban, which bore the brunt of the storm.
Scenes from Christmas eve celebrations in the Philippines:
Survivors of super typhoon Haiyan visit the grave of relatives at a mass grave for victims of the disaster in front of a chapel in Palo, before attending a traditional Christmas eve mass. (AFP)
Typhoon survivors gather during final dawn mass on Christmas eve at Palo Cathedral church in in central Philippine. (AP)
A survivor of Haiyan, which devastated the province of Leyte, kneels to kiss a statue of Jesus Christ in San Joaquin. (AFP)
On a lighter note, the US government said it had officially cleared Santa Claus for entry after waiving stringent livestock checks on his reindeer.
Meanwhile in space, astronauts from US space agency Nasa completed a rare Christmas Eve spacewalk to make repairs on the International Space Station.