Two weeks prior to the premiere, Chaplin decided to have an unpublicized preview at Los Angeles' Tower Theatre. It went poorly, attracting a small and unenthusiastic crowd. Better results were seen at the gala premiere on January 30, 1931 at the Los Angeles Theater. Albert Einstein and his wife were the guests of honor, and the film received a standing ovation. It next premiered at the George M. Cohan Theater in New York where Chaplin closely supervised the release, spending the day doing interviews, and previously spending $60,000 on the advertising, as he was frustrated with what UA's publicists had come up with. Chaplin demanded half of the total gross, and considering audiences would be more attracted by the film itself than its technology, he demanded higher ticket prices compared to talkies.
Chaplin was nervous about the film's reception because silent films were becoming obsolete by then, and the preview had undermined his confidence. Nevertheless, City Lights became one of Chaplin's most financially successful and critically acclaimed works. Following the good reception by American audiences, with earnings of $2 million, a quarter of which came from its 12-week run at the Cohan, Chaplin went on a sixteen-date world tour between February and March 1932, starting with a premiere at London's Dominion Theatre on February 27. The film was enthusiastically received by Depression-era audiences, earning $5 million during its initial release.
Reviews were mostly positive. A film critic for the Los Angeles Examiner said that "not since I reviewed the first Chaplin comedies way back in the two-reel days has Charlie given us such an orgy of laughs." The New York Times reviewer Mordaunt Hall considered it "a film worked out with admirable artistry". Variety declared it was "not Chaplin's best picture" but that certain sequences were "hilarious." The New Yorker wrote that it was "on the order of his other [films], perhaps a little better than any of them" and that it gave an impression "not often - oh, very seldom - found in the movies; an indefinable impression perhaps best described as a quality of charm." On the other hand, Alexander Bakshy of The Nation was highly critical of City Lights, objecting to the silent format and over-sentimentality and describing it as "Chaplin's feeblest".
The popularity of City Lights endured, with the film's re-release in 1950 again positively received by audiences and critics. In 1949, the critic James Agee wrote in Life magazine, that the final scene was the "greatest single piece of acting ever committed to celluloid." Richard Meryman called the final scene one of the greatest moments in film history. Charles Silver, Curator of Film at the Museum of Modern Art, stated that the film is so highly regarded because it brought forth a new level of lyrical romanticism that had not appeared in Chaplin's earlier works. He adds that like all romanticism, it is based in the denial of the real world around it. When the film premiered, Chaplin was much older, he was in the midst of another round of legal battles with former spouse Lita Grey, and the economic and political climate of the world had changed. Chaplin uses the Girl's blindness to remind the Tramp of the precarious nature of romanticism in the real world, as she unknowingly assaults him multiple times. Film.com critic Eric D. Snider said that by 1931, most Hollywood filmmakers either embraced talking pictures, resigned themselves to their inevitability, or just gave up making movies, yet Chaplin held firm with his vision in this project. He also noted that few in Hollywood had the clout to make a silent film at that late date, let alone do it well. One reason was that Chaplin knew the Tramp could not be adapted to talking movies and still work.
Several well-known directors have praised City Lights. Orson Welles said it was his favorite film. In a 1963 interview in the American magazine Cinema, Stanley Kubrick rated City Lights as fifth among his top ten films. In 1972, the renowned Russian director Andrei Tarkovsky placed City Lights as fifth among his top ten and said of Chaplin, "He is the only person to have gone down into cinematic history without any shadow of a doubt. The films he left behind can never grow old." George Bernard Shaw called Chaplin "the only genius to come out of the movie industry". Celebrated Italian director Federico Fellini often praised this film, and his Nights of Cabiria refers to it. In the 2003 documentary Charlie: The Life and Art of Charles Chaplin, Woody Allen said it was Chaplin's best picture. Allen is said to have based the final scene of his 1979 film Manhattan on its final scene. Chaplin biographer Jeffrey Vance has summarized all the best criticism and all the notable filmmakers who have singled out City Lights as their favorite Chaplin film throughout the decades in the Criterion Collection audio commentary track for the film. Vance has written that among all the praise afforded the film can be added that "City Lights also holds the distinction of being Chaplin's own favorite of all his films."
French experimental musician and film critic Michel Chion has written an analysis of City Lights, published as Les Lumières de la ville. Slavoj Žižek used the film as a primary example in his essay "Why Does a Letter Always Arrive at Its Destination?". Chaplin's original "Tramp" suit from the film was donated by him to the Museum of Natural History of Los Angeles County.
City Lights was ranked seventeenth on Cahiers du cinéma’s 100 Greatest Films 
City Lights was released as a dual-format Blu-ray and DVD by the Criterion Collection in 2013, both of which include trailers of the film, archival footage from production, and an audio commentary track by Chaplin biographer and scholar Jeffrey Vance, among others. The new cover was illustrated by Canadian cartoonist Seth.
In 1952, Sight and Sound magazine revealed the results of its first poll for "The Best Films of All Time"; City Lights was voted #2, after Vittorio DeSica's Bicycle Thieves. In 2002, City Lights ranked 45th on the critics' list. That same year, directors were polled separately and ranked the film as 19th overall. In 1992, the Library of Congress selected City Lights for preservation in the United States National Film Registry as being "culturally, historically, or aesthetically significant." In 2007, the American Film Institute's tenth anniversary edition of 100 Years... 100 Movies ranked City Lights as the 11th greatest American film of all time, an improvement over the 76th position on the original list. AFI also chose the film as the best romantic comedy of American cinema in 2008's "10 Top 10". The Tramp was number 38 on AFI's list of the 50 Best Heroes, and the film ranked at 38th among the funniest films, 10th among the greatest love stories, and 33rd on the most inspiring films.
The film is recognized by American Film Institute in these lists:
- 1998: AFI's 100 Years...100 Movies – #76
- 2000: AFI's 100 Years...100 Laughs – #38
- 2002: AFI's 100 Years...100 Passions – #10
- 2003: AFI's 100 Years...100 Heroes & Villains:
- The Tramp – #38 Hero
- 2006: AFI's 100 Years...100 Cheers – #33
- 2007: AFI's 100 Years...100 Movies (10th Anniversary Edition) – #11
- 2008: AFI's 10 Top 10:
- #1 Romantic Comedy Film