Polls opened at 8:00 am (0600 GMT) with nearly 62 million voters called to cast ballots in Europe's top economy. Initial television estimates are expected shortly after booths close at 1600 GMT.
After shepherding Germany through the debt turmoil, Merkel has emerged more popular than ever, proving a safe pair of hands as the crisis felled leaders in France, Greece, Italy and Spain.
Pollsters suggest that voters will re-elect the 59-year-old, whose nickname "Mutti" ("Mummy") can seem incongruous with her other often-used description as the world's most powerful woman.
But the burning question will be with whom she will govern.
"Rarely was it so close. Merkel's coalition only has a razor-thin majority in the polls," the Sueddeutsche Zeitung daily said Saturday, adding that many voters only make up their minds at the last minute.
Merkel boasts her current centre-right coalition has been Germany's most successful since reunification in 1990, enjoying a robust economy and a jobless rate of less than seven percent.
But her stated aim for her conservative Christian Democratic Union (CDU) to stay in power with its junior partners, the pro-business Free Democratic Party (FDP), hinges on the smaller party's unpredictable fortunes.
"The continued governing by this coalition remains uncertain," said Gero Neugebauer, a political scientist from Berlin's Free University.
If the alliance fails to rally a ruling majority, Merkel could be forced back into the arms of her traditional rivals, the Social Democrats (SPD), with whom she governed in a loveless "grand coalition" during her first term.
Under the watchful eye of Germany's European partners, a new eurosceptic party, the Alternative for Germany (AfD), could also prove a wild card, either by clawing enough support to send MPs into parliament or wooing disgruntled centre-right voters away.
Eurosceptics 'becoming a problem'
"For Chancellor Merkel the eurosceptics are becoming a problem," Spiegel Online commented on the eve of the vote.
"If the protest party manages to jump into the Bundestag (lower house of parliament), that may cost the black-yellow coalition power," it added, referring to the colour code for Merkel's current alliance.
Three polls in the run-up to the elections show the AfD, which advocates ditching the single currency and an "orderly dissolution" of the eurozone, falling below the five-percent hurdle needed to enter parliament.
But some analysts and pollsters have not ruled it out amid fresh Greek aid fears, stressing it is hard to assess the fledgling party's chances because it has no election track record and supporters may not admit to backing it in surveys.
Merkel again hammered home Europe's importance for Germany at a last-ditch push for votes in Berlin Saturday, saying her country "can only do well in the long term if all of Europe does well".
"This is why the stabilisation of the euro is not just a good thing for Europe but it is also in Germany's fundamental interest," she said, as a band belted out "Angie must save the world".
Merkel's gaffe-prone opponent Peer Steinbrueck, 66, has struggled to score points and his SPD party still trailed her conservatives by 13 points in the last opinion poll.
"Today is election day. It's in your hands. Please go vote," he tweeted early Sunday.
A former finance minister in Merkel's 2005-2009 grand coalition, Steinbrueck has run into trouble during the campaign, most recently with a surly middle-finger front-page photo of him as a non-verbal reply to a question on his stumbling candidacy.
He has zeroed in on the growing low-wage sector and calls for an across-the-board minimum wage, while Merkel favours more flexible pay agreements hammered out between employers and unions, regionally and by sector.
In his final-day stump speech, he urged voters to remove "the most inactive government that has made the least progress" in over two decades and mocked the famously ideologically flexible Merkel for "going round and round".