Published overnight, the Leveson report calls for tougher self-regulation of the industry via a new independent watchdog set up to regulate the press and prevent a repeat of the phone-hacking scandal that rocked Rupert Murdoch's News Corporation.
The year-long inquiry grilled politicians, celebrities, and even Mr Murdoch over claims journalists hacked the phone messages of thousands of people, including murdered schoolgirl Milly Dowler and dead British soldiers.
Prime minister David Cameron came under fire from a lawyer for the Dowler family in the wake of the report's publication after he said he feared that bringing in new laws risked curbing the freedom of the British press.
Handing down his report, Lord Justice Leveson was highly critical of sections of the press, describing its behaviour as "outrageous".
He said misbehaviour by the press had undermined its own arguments that it worked in the public interest.
"There have been too many times when, chasing the story, parts of the press have acted as if its own code, which it wrote, simply did not exist," he said.
He said that not only famous people but also ordinary members of the public had often tragic events "made much, much worse by press behaviour that, at times, can only be described as outrageous."
He criticised the relationship between the press and politicians in Britain, saying it had been too close.
But while recommending new laws to underpin a new media watchdog, Lord Justice Leveson said it would in no way allow parliament to regulate the newspapers.
"It would enshrine, for the first time, a legal duty on the government to protect the freedom of the press," he said.
"The ball moves back into the politicians' court: they must now decide who guards the guardians."
Lord Justice Leveson's recommendations threaten to divide Mr Cameron's coalition government.
Mr Cameron personally set up the inquiry, and will come under pressure to follow its recommendations.
But the PM told parliament that while he backed the creation of a new newspaper regulator, he feared that bringing in new laws risked curbing the freedom of the British press.
"I have some serious concerns and misgivings on this recommendation," he said.
"We will have crossed the Rubicon of writing elements of press regulation into the law of the land... we should think very, very carefully before crossing this line."
Liberal Democrat deputy prime minister Nick Clegg, taking the unusual step of making a separate statement after Mr Cameron's, said that he backed Lord Justice Leveson's call for new legislation.
"Changing the law is the only way to give us all the assurance that the new regulator isn't just independent for a few months or years, but is independent for good," he said.
Opposition Labour leader Ed Miliband also said Lord Justice Leveson's proposals, which will be debated in the House of Commons on Monday, should be implemented.
"No more last chance saloons," he said, referring to repeated warnings over the last two decades that the British press had had enough warnings.
Hacking victims disappointed
The British press, already suffering huge losses of readers and advertisers, currently regulates itself through the Press Complaints Commission, a body staffed by editors. Its critics say it is toothless.
Lord Justice Leveson said in his report that the new watchdog would have independent members, except for one editor.
It would have the power to fine offenders up to 1 million pounds ($1.6 million) and to order the publication of apologies and corrections.
Those powers would be backed by new laws, he said. He summed up his plans as "independent regulation of the press organised by the press, with a statutory verification process".
Hacked Off, a victims' campaign group featuring Hollywood star Hugh Grant, said it was disappointed by Mr Cameron's opposition to the plan.
Mark Lewis, a lawyer for the Dowler family and other phone-hacking victims, said: "There wasn't much point in a judicial inquiry unless it's implemented."
But Tom Mockridge, chief executive of Murdoch's newspaper wing News International, welcomed Mr Cameron's "rejection" of the proposal to introduce statutory regulation.
Over eight months of hearings, the Leveson Inquiry heard from victims of press intrusion including Grant and Harry Potter author JK Rowling, politicians, journalists, police and newspaper executives.
Their testimony revealed embarrassing text messages from Cameron to Murdoch newspaper executive Rebekah Brooks, left a minister fighting for his career, and shone a light on the sometimes murky workings of the British establishment.
Police have arrested dozens of people under three linked probes into alleged crimes by newspapers.
Brooks, who was Mockridge's predecessor at News International, and Cameron's former spokesman Andy Coulson both appeared in court earlier on Thursday on bribery charges.