People voted for change after six years of a liberal government led for most of that time by Jacinda Ardern.
The exact make-up of Mr Luxon’s government is still to be determined as ballots continued to be counted.
Prime Minister Chris Hipkins, who spent just nine months in the top job after taking over from Ms Ardern in January, told supporters he had called Mr Luxon to concede.
Mr Hipkins said it was not the result he wanted.
“But I want you to be proud of what we achieved over the last six years,” he told supporters at an event in Wellington.
Ms Ardern unexpectedly stepped down as prime minister in January, saying she no longer had “enough in the tank” to do the job justice.
She won the last election in a landslide, but her popularity waned as people got tired of Covid-19 restrictions and inflation threatened the economy.
Her departure left Mr Hipkins, 45, to take over as leader. He had previously served as education minister and led the response to the coronavirus pandemic.
With more than two thirds of the vote counted, Mr Luxon’s National Party had about 40% of the vote. Under New Zealand‘s proportional voting system, Mr Luxon, 53, was expected to form an alliance with the libertarian ACT Party.
Meanwhile, the Labour Party that Mr Hipkins leads was getting only a little over 25% of the vote - about half the proportion it got in the last election under Ms Ardern.
And in a result that would be particularly stinging for Labour should it lose the seat, the National Party was in a tight race for Ms Ardern’s old electorate seat, Mount Albert.
The seat has long been a Labour stronghold and was also held by another former Labour prime minister, Helen Clark.
The National Party candidate for the seat, Melissa Lee, told the Associated Press she was feeling excited but also nervous about the final result in Mount Albert.
“It’s been Labour since 1946. It has been the biggest, safest Labour seat forever,” she said. “It would be fantastic if we won it.”
Mr Luxon has promised tax cuts for middle-income earners and a crackdown on crime. Mr Hipkins had promised free dental care for people younger than 30 and the removal of sales taxes on fruit and vegetables.
Also at stake in the election is the government’s relationship with indigenous Maori.
Mr Luxon has promised to axe the Maori Health Authority, which he says creates two separate health systems.
Within days of taking the reins in January, Mr Hipkins found himself dealing with a crisis after deadly floods and then a cyclone hit New Zealand.
He quickly jettisoned some of Ms Ardern’s more contentious policies and promised a “back to basics” approach focused on tackling the spiralling cost of living.
Warm spring weather in the largest city of Auckland seemed to encourage voters, with queues forming outside some polling places. Early voting before election day was lower than in recent elections.