After decades of conflict, South Sudan is now an independent state.
President Omar al-Bashir of Sudan and UN Secretary General Ban Ki-moon are among the dignitaries attending celebrations in the capital, Juba.
The BBC reports 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 as South Sudan became the 193rd country recognised by the United Nations.
A formal independence ceremony is due to be held later on Saturday.
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.
Unresolved disputes between the north and south, particularly over the new border, have also raised the possibility of renewed conflict.