City put their fans through a nervy ride after Sergio Aguero missed a first-half penalty following an incident in which goalkeeper Kevin Trapp was perhaps lucky not to be sent off.
But backed by raucous fans in a club record European crowd of 53,039, Manuel Pellegrini's men held on to seal a historic result.
The atmosphere was one of the liveliest City have produced in the competition and, contrary to suggestions it might set the wrong tone, the fans' now traditional booing of the anthem actually energised the crowd.
It still took time for the game to warm up but after Zlatan Ibrahimovic continued his duel with Joe Hart by forcing the England goalkeeper to tip over his 15th-minute free-kick there were few quiet moments.
PSG, fielding an unfamiliar back three, looked the most vulnerable in defence with Serge Aurier looking particularly shaky.
Aguero started to look lively and shot narrowly wide twice in quick succession, the first from a tight angle and the second with a dipping half-volley.
The Argentinian was presented with an even better chance on the half-hour as he raced onto a Fernandinho pass but was brought down by goalkeeper Trapp.
Spanish referee Carlos Velasco Carballo pointed to the spot but PSG had a double reprieve first as Trapp escaped with a yellow card and then as Aguero put his spot-kick wide.
Aguero's eventful first half continued as went down clutching his knee after landing awkwardly but City anxiety was eased as he got up to continue after treatment.
Thiago Motta was not so fortunate as he limped off with a hamstring injury on the stroke of half-time, forcing PSG to revert to a back four.
Needing a goal, the visitors started the second half well with Ibrahimovic again testing Hart with a thunderous free-kick and Gregory van der Wiel shooting straight at the keeper. City tried to mount some attacks themselves but were continually thwarted in the final third and had another nervy moment when Hart had to palm over a Thiago Silva header.
As time began to tick away for PSG, behind on away goals, City fans began to grow in confidence to the extent that they taunted Ibrahimovic. The Swede was compared unflatteringly to Andy Carroll and, far from winding up the PSG talisman, he seemed unable to get into the game.
Eliaquim Mangala and Nicolas Otamendi repelled the visitors and City finally broke the deadlock after 76 minutes as the outstanding De Bruyne curled a superb low shot past Trapp.
Aguero might even have increased the advantage moments later but fired narrowly wide from distance.
PSG battled on despite knowing they would need at least two goals but their efforts proved in vain. Hart made a crucial save from Edinson Cavani and the French side were also denied by an offside flag when Ibrahimovic turned the ball in five minutes from time.
Five things we learned from Man City v PSG
Manchester City are through to the Champions League semi-finals for the first time in their history.
Kevin De Bruyne's wonderful second-half strike secured Manuel Pellegrini's men a 1-0 win against Paris St Germain, seeing them through 3-2 on aggregate.
1. ENGLISH FOOTBALL IS NOT SO BAD AFTER ALL
The true quality of the Premier League has been widely debated over recent years due to English sides' inability to make much of an impact in the Champions League or its ugly sister, the Europa League. City bucked the trend by making history on Tuesday, becoming just the second Premier League side since 2012 to reach the semi-final juncture of European football's top club competition.
2. OTAMENDI & MANGALA CAN RISE TO THE OCCASION
PSG will have no doubt smiled when Pellegrini confirmed on the eve of the quarter-final that captain Vincent Kompany was not ready to return from his latest calf injury. It meant Nicolas Otamendi and Eliaquim Mangala lined-up in central defence, but the oft-derided duo performed manfully to keep Laurent Blanc's men at bay. They read the game well and put themselves in harm's way when necessary.
3. ZLATAN HAS A LOT TO OFFER THE PREMIER LEAGUE
The Etihad Stadium did not witness Zlatan Ibrahimovic at his best, but the Sweden striker did enough to dispel any concerns in Manchester about his ability to compete at the highest level. Louis van Gaal has suggested he may be too old for Manchester United, but the divisive 34-year-old's presence was felt throughout this tie. Joe Hart had to be at his best to twice deny free-kicks from Ibrahimovic, whose anger at having a late goal chalked off the offside was clear. Unfavourable comparisons with Andy Carroll may also have irked.
4. CITY MIGHT WANT TO TAKE AGUERO OFF SPOT-KICKS
Sergio Aguero is one of the best players in the Premier League and City's star man. The Argentina international proved a nuisance throughout the second leg, but he left the Etihad Stadium open-mouthed on the half-hour mark by putting a spot-kick wide. Aguero may have netted his penalty against West Brom at the weekend, but he has now failed in two of his last three in the Champions League. De Bruyne, so impressive from set pieces, would be an ideal replacement.
5. COLLECTIVE ANGER GETS CITY GOING
Tuesday's win may have helped the City faithful warm to the Champions League, but their dislike of UEFA and its anthem is not going anywhere. Pellegrini joked in the build-up if they keep winning, then the fans can keep booing. Unsurprisingly, they did so with gusto on Tuesday night - arguably the loudest they got until De Bruyne struck. Furthermore, that pre-match din looked to help get City off to a bright start.
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