The announcement by the royal palace marked the first time since 1949 that Prince Rainier III - Europe's longest-serving ruler - has not been in control of the Mediterranean realm smaller than New York's Central Park and famed as a playground for the rich and famous.
Albert, 47, is the only son of Rainier and his late wife, Grace Kelly, the American beauty who exchanged Hollywood stardom for the life of a princess.
Well-traveled, multilingual and Monaco's top ambassador in recent years, the unmarried Albert is also regarded as a shy, even reluctant, heir. Sports are a love: He is a five-time bobsledding Olympian and has headed Monaco's Olympic committee since 1994.
Albert promised to devote himself "with strength, conviction and passion" to his new role as regent.
"The state of health of our father remains very fragile," he said in a statement. "Today, faced with the difficulty for my father in exercising his high functions, I will assume all of the royal powers in his name."
Rainier, 81, was hospitalized March 7 and has been in intensive care for 10 days with breathing, kidney and heart problems.
The Council of the Crown, a commission appointed by Rainier, met Thursday at the royal palace that overlooks Monaco's yacht-filled harbor and decided after weighing his doctors' diagnosis that the ailing prince can no longer rule.
The regency means Albert takes over royal powers while Rainier is sick, but his father could regain them if he recovers, said palace spokesman Armand Deus. Rainier keeps the throne.
"The sovereign prince is still Prince Rainier III," said Deus.
Albert has been groomed to rule the principality that has been run by his family - the Grimaldis - for seven centuries.
But he has remained heirless - causing so much concern that the constitution was revised in 2002 to ensure the continuation of the dynasty. His older sister - Princess Caroline, now 48 - would succeed him. She in turn, would be succeeded by her oldest son, Andrea Albert Pierre, 20.
Albert studied in the United States, at Amherst College in Massachusetts, after receiving his high school baccalaureate diploma in 1976. He returned home in 1981 after being awarded a degree in political science.
Befriended by numerous celebrities, Albert has remained doggedly his own person and, despite his retiring nature, increasingly assumed the role as Monaco's public face as his father grew frail.
There had long been speculation that Rainier, his health increasingly fragile, would turn over power to his son. But the decision was finally made for him, when Rainier's long-failing health became critical.
More than a week of medical updates appear to have prepared the principality for the regency.
"We were waiting for this," said Carlos Gonzales, a Monaco tour guide. "This is a way of saying his (Prince Rainier's) condition is irreversible. We all knew the end was coming."
The last statement from Rainier's three doctors, issued Wednesday, said the prince remained in stable condition, thanks to kidney dialysis and other treatment. The statement said the next update would come in 48 hours, an unusual move after nearly daily reports on his health.
By Jocelyn Gecker