Temer, 75, was sworn in shortly after a majority of senators voted Wednesday in a highly charged session to remove the leftist Rousseff, 68, on grounds that she illegally manipulated the state budget.
Rousseff's successor shrugged off her claims that he had led a "coup" to seize power from her Workers' Party government, which has ruled Brazil for 13 years.
Sworn in to serve out the remainder of Rousseff's four-year presidential term up to the end of 2018, Temer vowed to create jobs in the recession-stricken country and guarantee "political stability" to lure investors.
"My only interest is in handing over to my successor a country that is reconciled, pacified and growing economically," he said in a pre-recorded television address, aired as he headed off to China for a G20 summit.
Rousseff told supporters at the Alvorada presidential palace on the outskirts of the capital Brasilia that she had committed no crime.
"They have convicted an innocent person and carried out a parliamentary coup," she said, defiantly vowing that she'd "be back."
In the day's surprise twist, a separate vote to bar Rousseff from holding any public office for eight years failed to pass, meaning she could in theory re-enter political life.
Cheers, Cries, Protests
Rousseff was accused of taking illegal state loans to patch budget holes in 2014, masking the country's problems as it slid into economic disarray.
Pleading her innocence during a marathon 14-hour session on Monday, she said that abuse of the impeachment process put at risk Brazil's democracy, restored in 1985 after a two-decades-long military dictatorship.
She recalled how she was tortured and imprisoned in the 1970s for belonging to a leftist guerrilla group.
Cheers mixed with cries of disappointment erupted in the blue-carpeted Senate chamber Wednesday as the impeachment verdict flashed up on the electronic voting screen.
In the streets around the Congress, a few dozen Rousseff supporters protested -- a fraction of the crowds her party once mobilized.
"We are protesting against the coup and fighting for democracy," said 61-year-old farmer Orlando Ribeiro.
In Sao Paulo, riot police fired tear gas to disperse crowds of protesters.
A few hundred protested peacefully in central Rio de Janeiro, waving flags and yelling "Temer out!"
Under Rousseff and her more popular predecessor, Luiz Inacio Lula da Silva, 29 million Brazilians were lifted from poverty. But their Workers' Party became bogged down in corruption and a deep economic slump.
Huge anti-Rousseff street demonstrations over the past year reflected nationwide anger at Rousseff's management of a country mired in double-digit unemployment and inflation.
Temer had already begun drawing up market-friendly austerity reforms after taking over in an interim role after Rousseff's initial suspension in May.
He is planning to pass a spending cap and a sensitive pensions reform.
On the Senate floor, emotions crackled in the run-up to the vote, then boiled over as senators made their final speeches.
Senator Aecio Neves, Rousseff's narrowly defeated center-right opponent in her 2014 re-election, pronounced triumphantly: "The constitution won. Brazil won!"
Pro-Rousseff senator Lindbergh Farias yelled: "This is a farce, a farce, a farce!"
Rousseff's lawyer Jose Eduardo Cardozo said he would bring a legal challenge against the impeachment to the high court.
Senator Romero Juca from Temer's center-right PMDB party said he expected an appeal to the decision to allow Rousseff to eventually re-enter politics.
Law professor Silvana Batini of the Getulio Vargas Foundation in Rio told AFP that Rousseff could run for office again but faced uncertainty with the appeals and other court cases pending that could affect her political fate.
"Rousseff can run in the 2018 elections for deputy, senator, governor, state legislator, but not for president because she has just served two consecutive terms," Batini said.
"But she could be a candidate (for president) in 2022."
Lula wants to run for president in 2018 but could trip up too. He is being investigated for alleged crimes linked to a vast scandal over state oil firm Petrobras. Several of Temer's top allies are implicated too.