Witness video obtained by The Associated Press showed a woman dressed in a red hooded sweat shirt vaulting over the wooden barriers that cordoned off the basilica's main aisle and rushing toward the pope before being swarmed by bodyguards.
The video showed the woman grabbing the pope's vestments as she was taken down by guards, with Benedict then falling on top of her.
The commotion occurred as the pope's procession was making its way toward the main altar and shocked gasps rang out among the thousands who packed the basilica. The procession came to a halt, the music stopped and security rushed to the trouble spot.
A Vatican spokesman, the Rev. Ciro Benedettini said the woman appeared to be mentally unstable and had been taken into custody by Vatican police. He said she also knocked down Cardinal Roger Etchegaray, who was taken to hospital for a checkup.
"During the procession an unstable person jumped a barrier and knocked down the Holy Father," Benedettini told The AP by telephone. "(The pope) quickly got up and continued the procession."
It was the second year in a row that there had been a security breach at the Christmas Eve service and this was the most serious incident involving the public in Benedict's five-year papacy. At the end of last year's Mass, a woman who had jumped the barriers got close to the pope but was quickly blocked on the ground by security.
That woman too wore a red hooded sweat shirt, but Benedettini said it was not immediately known if the same person was behind Thursday's incident.
MaryBeth Burns from Paris, Texas, was about four people away from the woman who jumped the barriers and was filming the pope's procession as the commotion started.
"All of a sudden this person sort of flew over the barricade and the Holy Father went down and all the security people were on top of it, a whole pile there, getting her off and him back up," said Burns, who was visiting Italy with her family on a religious pilgrimage for Christmas.
"I'm really mad because I had a perfect shot lined up," she added. "I'm still shaking."
Benedict lost his miter and his staff in the fall. He remained on the ground for a few seconds before being helped back up by attendants. At that point, a few shouts of "viva il papa!" (long live the pope!) rang out, followed by cheers from the faithful, witnesses said.
After getting up, Benedict, flanked by tense bodyguards, resumed his walk to the basilica's main altar to start the Mass. The pope, who broke his right wrist in a fall this summer, appeared unharmed but somewhat shaken and leaned heavily on aides and an armrest as he sat down in his chair.
Few people who were watching the Mass on giant screens set up in a rain-soaked St. Peter's Square even knew that the pope had fallen, with many saying that either they weren't looking or had arrived too late.
Benedict made no reference to the disturbance after the service started. As a choir sang, he sprinkled incense on the altar before opening the Mass with the traditional wish for peace in Latin.
The incident was the first time a potential attacker came into direct contact with Benedict, and underscored concerns by security analysts who have frequently warned the pope is too exposed in his public appearances.
There have been other security breaches at the Vatican.
In 2007, during an open-air audience in St. Peter's Square, a mentally unstable German man jumped a security barrier and grabbed the back of the pope's open car before being swarmed by security guards.
Then there was the assassination attempt against Pope John Paul II by Turkish gunman Mehmet Ali Agca in 1981. John Paul suffered a severe abdominal wound as he rode in an open jeep at the start of his weekly audience in the Vatican piazza.
The pope is protected by a combination of Swiss Guards, Vatican police and Italian police.
Since the Sept. 11, 2001 attacks on the U.S., the Vatican has tightened security at events where the pope is present. All visitors must pass by police to get into the square, with those entering the basilica going through metal detectors or being scanned by metal-detecting wands.
However, Sister Samira, an Indian aide to Vatican officials who attended the service and saw the incident, said she is never searched by security when she attends papal Masses, and said the same holds true for other people in religious garb.
Burns, the U.S. pilgrim, said security had been tight, and that it seemed there was no way to have prevented the woman from getting to the pope other than keeping the public out altogether.
"This is Midnight Mass in the heart of our church," she said. "I guess the Holy Father puts himself at risk every time he's around anybody, any crowds really."
In a similar incident, Italian Premier Silvio Berlusconi was attacked as he was greeting the crowd at a political rally earlier this month. A man with a history of psychological problems hurled a souvenir statuette at the politician, fracturing his nose and breaking two of his teeth.
Benedict celebrated this year's Christmas Eve Mass two hours earlier than the usual midnight starting time in a move by the Vatican to ease the pontiff's busy holiday schedule.
Benedict has been remarkably healthy during his pontificate, keeping to a busy schedule and traveling around the world.
But in July, he broke his wrist during a late-night fall while vacationing in an Alpine chalet and had to have minor surgery and wear a cast for a month - an episode that highlights the risk he ran in Thursday's tumble.
In his homily, delivered unflappably after the incident, the pope urged the world to "wake up" from selfishness and petty affairs, and find time for God and spiritual matters.
"To wake up means to leave that private world of one's own and to enter the common reality," Benedict said in Italian. "Conflict and lack of reconciliation in the world stem from the fact that we are locked into our own interests and opinions, into our own little private world."
Benedict's next scheduled appearance is at noon on Christmas Day, when he is to deliver his traditional "Urbi et Orbi" speech (Latin for "To the city and the world") from the basilica's balcony.
AP writer Nicole Winfield contributed to this report.