It was the fourth major attack in Pakistan this week, indicating Islamist militants are stepping up violence after a period of relative calm.
About ten of those killed were soldiers, said Lahore police chief Parvaiz Rathore.
The bombers, who were on foot, struck RA Bazaar, a residential and commercial neighborhood where several security agencies have facilities. Security forces swarmed the area as thick black smoke rose into the sky and bystanders rushed the injured into ambulances. Video being shot with a mobile phone just after the first explosion showed a large burst of orange flame suddenly erupting in the street, according to GEO TV, which broadcast a short clip of the footage shot by Tabraiz Bukhari.
"Oh my God! Oh my God! Who are these beasts? Oh my God!" Bukhari can be heard shouting after the blast in a mixture of English and Urdu.
Senior police official Tariq Saleem Dogar said 39 people were killed, and another 95 were hurt. Some of the wounded were missing limbs, lying in pools of blood after the enormous explosions, eyewitness Afzal Awan said.
"I saw smoke rising everywhere," Awan told reporters. "A lot of people were crying."
No group immediately claimed responsibility, but suspicion quickly fell on the Pakistani Taliban and al-Qaida.
The militants are believed to have been behind scores of attacks in U.S.-allied Pakistan over the last several years, including a series of strikes that began in October and lasted around three months, killing some 600 people in apparent retaliation for an army offensive along the Afghan border.
In more recent months, the attacks were smaller, fewer and confined to remote regions near Afghanistan.
But on Monday, a suicide car bomber struck a building in Lahore where police interrogated high-value suspects - including militants - killing at least 13 people and wounding dozens. The Pakistani Taliban claimed responsibility.
Also this week, suspected militants attacked the offices of World Vision, a U.S.-based Christian aid group, in the northwest district of Mansehra, killing six Pakistani employees, while a bombing at a small, makeshift movie theater in the main northwest city of Peshawar killed four people.
The attacks show that the loose network of insurgents angry with Islamabad for its alliance with the U.S. retain the ability to strike throughout Pakistan despite pressure from army offensives and American missile strikes against militant targets.
The violence also comes amid signs of a Pakistani crackdown on Afghan Taliban and al-Qaida operatives using its soil. Among the militants known to have been arrested is the Afghan Taliban's No. 2 commander, Mullah Abdul Ghani Baradar.
The Pakistani Taliban, meanwhile, are believed to have lost their top commander, Hakimullah Mehsud, in a U.S. missile strike in January. The group has denied Mehsud is dead but has failed to prove he's still alive.
Militant attacks in Pakistan frequently target security forces, though civilian targets have not escaped.
During the bloody wave of attacks that began in October - coinciding with the army's ground offensive against the Pakistani Taliban in the South Waziristan tribal area - Lahore was hit several times.
In mid-October, three groups of gunmen attacked three security facilities in the eastern city, a rampage that left 28 dead. Twin suicide bombings at a market there in December killed around 50 people.
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Ahmed reported from Islamabad. Associated Press Writer Asif Shahzad also contributed to this report from Islamabad.
