Three other candidates finished well behind the two in what appeared to be a very low turnout election.
In a speech to supporters Tuesday night, Emanuel congratulated Garcia on his second-place finish and said he looked forward "to a debate of the issues" with him.
"We have come a long way and we have a little bit further to go," said Emanuel.
Some supporters booed when Emanuel mentioned Garcia's name, but he sought to quiet them, calling him a "good man."
In his own speech, Garcia said, "We're still running. And we're going to win."
He added: "Today we the people have spoken. Not the people with the money and the power and the connections."
The outcome is a blow to the establishment governing wing of the Democratic Party led by President Obama, who enthusiastically backed Emanuel in the campaign. It is at least a temporary victory for liberal activists who lined up behind Garcia, a Cook County commissioner who has been running as an economic populist.
The stage is now set for a sprint toward the April 7 citywide runoff election, the first since Chicago changed its laws to allow runoffs in 1995. The election will test whether Garcia can marshal enough money and enthusiasm to unseat Emanuel, who is expected to continue to spend heavily.
On the campaign trail, Garcia has criticized not just Emanuel, but Obama and former secretary of state Hillary Rodham Clinton. He has praised Sen. Elizabeth Warren (D-Mass.).
Garcia, whose signature mustache and nickname have helped him leave a lasting impression in voters’ minds, has accused Emanuel of disproportionately representing wealthier residents of the city at the expense of everyone else.
Emanuel, a former North Side congressman and Obama's first White House chief of staff, has experienced a tempestuous first term punctuated by intense clash with the city’s teachers union, which backs Garcia.
He is at odds with the teachers over a 2012 strike and a controversial decision to close nearly 50 elementary schools to shrink a budget deficit.
The mayor has dramatically outspent Garcia and three other opponents. He blanketed the airwaves with ads, including a TV and radio spot featuring the president.
One commercial attacked Garcia as a tax raiser who upped his own pay in office.
Elections officials were anticipating low turnout less than an hour before the polls closed, with the possibility of dipping below the all-time low of 33 percent, which came in 2007.
"Four years ago it was 42 percent. We don't expect it to be 42 percent," said Jim Allen, a spokesman for the Chicago Board of Elections.
The runoff will raise questions about whether Obama will return to campaign for Emanuel and what impact he will have on the outcome.
Last week, the president returned to Chicago, where he launched his political career, to dedicate the Pullman National monument on the South Side. He praised Emanuel during his visit and later stopped by a campaign office to greet volunteers.
The visit was seen as potentially a major boost for Emanuel, especially among African American voters. Emanuel has spent much of his time and effort courting black voters, who he won decisively in 2011.