"Tskhinvali has been fully liberated," a spokesman said.
The city has suffered major destruction since the start of Georgia's ground and air onslaught that began early on Friday. Russia says 1,500 people have so far died in the violence, and 30,000 South Ossetians have fled across the border into Russia.
Chief of Government Staff Sergei Sobyanin told Russian President Dmitry Medvedev at a meeting in the Kremlin earlier on Saturday that "a real humanitarian catastrophe" is developing.
South Ossetian Prime Minister Yury Morozov confirmed that the city is now under the control of Russian troops, but warned that the death toll may rise.
He told Russian TV channel Vesti-24 that thousands of people have been injured, and that numerous residents remain trapped under the rubble of bombed-out buildings, making it difficult to assess the number of fatalities.
Medvedev announced earlier that the country's troops had begun a military operation in South Ossetia to force Georgian troops to cease violence.
Paratroopers from Russia's Ivanovo, Moscow and Pskov airborne divisions have been sent to Tskhinvali, and international news agencies have reported Russian air strikes on the Georgian town of Gori, near South Ossetia, the Black Sea port of Poti, and on two military bases.
The current conflict is a culmination of years of tensions between Russia and Georgia, which has accused Russia of trying to annex South Ossetia along with another rebel region, Abkhazia.
The pro-Western leaderships in Georgia, along with ex-Soviet Ukraine, have angered Moscow in recent years with their efforts to gain NATO membership. Russia's Foreign Ministry accused Ukraine on Saturday of encouraging Georgia to launch an offensive against South Ossetia.
"The Ukrainian state, which has in recent times been misguidedly arming the Georgian army, and in so doing directly encouraging the Georgian leadership to engage in intervention and ethnic cleansing in South Ossetia, has no moral right to preach to others, let alone to seek a role in regulating the conflict," the ministry said in a statement.