The Spanish government has stripped Catalonia of its autonomy and taken charge of its government.
Puigdemont, accompanied by other members of the Catalan regional government, lawmakers and hundreds of mayors, crowded onto the steps of the parliament building to address thousands of supporters gathering outside, shouting "liberty".
Earlier, Catalonia's most senior police officials had been stripped of their powers.
Could we see the army on the streets of Barcelona?
"Today is the day that many Catalans' long-held desire will be fulfilled, but tomorrow the cruel reality will set in, with the Spanish state armed with its interpretation of Article 155", said Joan Rigol i Roig, former speaker of the Catalan parliament.
The EU has been voicing support for the central government in Madrid since the beginning of the Catalan's call for independence. Others boycotted the vote after the court ruling.
Jonathan Davis, an economist with Jonathan Davis Wealth Management, said: "The reason why Catalonia wants to leave Spain is exactly the reason why in Britain we've voted for Brexit, why the Americans voted for Trump, because the people are fed up with what governments and socialists are doing to us".
Speaking outside the senate, Prime Minister Mariano Rajoy said what happened in Catalonia was "proof" that invoking Article 155 was "necessary".
Around 12,000 people gathered there shortly after the legislature's decision, according to local authorities.
The prime minister also said that the Catalan police chief would be fired.
Regional elections are scheduled for 21 December.
Who makes the next move? "The legitimate representatives have followed the people's mandate".
The same crowds that cheered each Yes vote from Catalan MPs reportedly booed Mr Rajoy as he made his announcement.
Despite the declaration of independence, the Catalan president and his cabinet may find themselves out of a job by Saturday morning.
The European Union Council President Donald Tusk, who has supported Madrid's approach to the crisis, said on Twitter he hoped "the Spanish government favors force of argument, not argument of force".
How did we get here?
The United Nations spokesperson urged all sides "to seek solutions with in the framework of the Spanish constitution and through established political and legal channels".
Germany does not recognise Catalonia's unilateral declaration of independence, a government spokesman said on Friday, calling for dialogue between the two sides.
Catalonia represents a fifth of Spain's gross domestic product.
"The sovereignty and territorial integrity of Spain are and always will be inviolable", he added. Catalan society is also deeply divided over the issue.