The flight of the glowing white orbs through the heart of Berlin marked the climax of a huge open-air party at the Brandenburg Gate, the symbol of German unity, which drew an estimated one million guests to the city.
A quarter-century after the breach of Europe's Cold War division, artists had tethered nearly 7,000 balloons along a 15-kilometre stretch of the despised concrete barrier's former 155-kilometre path, making it visible once again.
Earlier British singer Peter Gabriel sang a stripped-down version of David Bowie's Wall anthem "Heroes", sharing the stage with rock bands from east and west Germany and former dissidents.
Merkel, 60, who grew up in communist East Germany, said earlier at a memorial for those killed trying to escape the repressive regime that the Wall was a "symbol of state abuse cast in concrete" that "broke" many people.
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In an unusually emotional speech, Merkel said: "We can change things for the better -- that is the message of the fall of the Berlin Wall."
Merkel said the events inspired hope that the world can tear down "walls of dictatorship, violence, ideology and hostility".
"Too good to be true? A daydream that will burst like a bubble? No, the fall of the Wall has shown us that dreams can come true."
The celebrations started on a sombre note with an ecumenical service and ceremony for the at least 389 victims of the border, many of whom were shot or blown up by mines as they tried to flee the East.
"It was wonderful, obviously, wonderful, but at the same time, strange," said medical researcher Uschi, 50, about the night when citizens from both sides found the courage to cross into the heavily guarded no-man's land.
"The police were very hesitant. It's a miracle that no shot was fired.