"I was shocked to learn of the despicable attack on the newspaper in Paris," the German leader wrote in a condolence letter to President Francois Hollande.
"I would like to express to you and your compatriots in this hour of suffering the sympathy of the German people as well my own sorrow, and convey my condolences to the victims' loved ones."
Merkel said "this repulsive act" was "not only an attack on the lives of French citizens and France's national security".
"It is also an attack on freedom of expression and the press — a key component of our free democratic culture — which cannot be justified," she said added.
Foreign Minister Frank-Walter Steinmeier of Merkel's coalition allies the Social Democratic Party (SPD) said that "such an act of terror in the heart of one of our European cities against representatives of a free and critical press is abhorrent.
"This is a frontal attack on our European values and the freedom of our societies, which we must oppose together with all our strength.
"In this difficult hour we stand even closer by the side of our friends in France."
Civil society organizations were also quick to react to the tragedy, with the Turkish Community in Germany (TGD) condemning the attack "in the harshest terms"
"Criminals who justify their brutal murders and attacks with a religion are just as much murderers as criminals with other motives. Terror and violence in the name of a religion are just as unacceptable as racism, discrimination and exclusion," the TGD added.
President of the Munich Islamic Forum Imam Benjamin Idriz called the attack on Charlie Hebdo "the most serious form of blasphemy" whose perpetrators "don't belong in Europe and don't belong in Islam".
The Prophet Mohammed would "distance himself from such barbaric acts and judge them most harshly", he said, adding that freedom of expression should be as strongly protected as freedom of religion.
Meanwhile Interior Minister Thomas de Maizière warned that there was "grounds for concern and preparation, but not for panic" about a possible attack in Germany.
"Extremist Islamism, islamist terrorism, is something totally different from Islam. And this differentiation is especially important on a day like today."