We report the observation of the decay B0→π0π0, using a 253fb-1 data sample collected at the Υ(4S) resonance with the Belle detector at the KEKB e+e- collider. The measured branching fraction is B(B0→π0π0)= (2.3-0.5-0.3+0.4+0.2)×10-6, with a significance of 5.8 standard deviations including systematic uncertainties. We also make a measurement of the direct CP violating asymmetry in this mode. © 2005 The American Physical Society.