The Rugby World Cup Limited (RWCL) board last month unanimously recommended South Africa to host the tournament in six years' time.
Yet World Rugby Council members on Wednesday voted in favour of the France bid, despite South Africa being picked out as a "clear leader" a couple of weeks before decision day.
France presented the tournament solo for the first time in 2007, having played joint-host in 1991 with the UK and Ireland, and they will also stage the 10th edition of the tournament.
— Rugby World Cup (@rugbyworldcup) November 15, 2017
The successful French bid received 18 votes in the first round of voting to South Africa's 13, with only eight in favour of Ireland.
A decisive second round of voting resulted in France getting 24 votes to South Africa's 15.
World Rugby chairman Bill Beaumont said: "I think we've been fortunate to have three great bids and certainly there's going to be two of the countries extremely disappointed.
"Obviously delighted for France that they've run a World Cup before, they have run events before and I think it will be a really exciting tournament."
South Africa were expected to get the vote to stage the tournament for a second time, having hosted a 1995 World Cup which was won by the Springboks.
SA Rugby president Mark Alexander said: "We are bitterly disappointed at this decision and would like to apologise to the people and government of South Africa for raising their hopes.
"We did everything in our power to bring the tournament to South Africa and we expected to have that right confirmed today.
"We produced a compelling bid document that earned the unanimous recommendation of the Rugby World Cup Ltd board. That recommendation was questioned last week by rivals, but endorsed a second time by World Rugby last week.
"However, the view of the experts and World Rugby's leadership was overturned by World Rugby Council members, who may have had other factors to take into account.
"We cannot hide our desolation but, for the sake of rugby we wish the 2023 tournament hosts every success."
Photo Getty Images. Caption: The Webb Ellis Cup, presented to rugby's world champions