The decision -- passed by a vote of 14 to five -- is non-binding, but delivers Rousseff yet another setback on the eve of the Olympics opening ceremony in Rio de Janeiro.
Instead of presiding over the opening of an Olympics once meant to showcase Brazil's growing economic power and political stability, Rousseff now takes another step toward what looks increasingly like her political downfall.
Rousseff is accused of spending money without congressional approval and taking out unauthorized loans from state banks to make the national budget look better than it really was as she campaigned for re-election in 2014.
Her allies point out that many of the lawmakers accusing her are implicated in corruption cases far more serious than mere accounting shenanigans.
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But opponents on the impeachment committee delivered a damning verdict.
"The president will be removed from office for the extremely serious crimes she committed," said Senator Cassio Lima of the opposition PSDB party.
"It was the biggest fiscal fraud in the country's history."
Rousseff is refusing to attend tomorrow's Olympic ceremony, saying she does not want to play a "secondary role."
On August 9, the full Senate will vote on whether to proceed with the impeachment trial. A simple majority would suffice and the measure is expected to pass easily.
Then a final and decisive session in the full Senate is scheduled for August 29, a week after the Olympics close, when a two-thirds majority is required to eject Rousseff.
Impeachment committee official Antonio Anastasia said Tuesday that he fully supports finding Rousseff guilty.