Norbert Hofer, of the Freedom Party, faces independent Alexander Van der Bellen, backed by the Greens.
Mr Hofer topped the first vote but fell well short of an outright majority. The run-off is expected to be close.
For the first time since World War Two, both the main centrist parties were knocked out in the first round.
The migrant crisis has become the key issue.
Ninety-thousand people claimed asylum in Austria last year, equivalent to about 1% of the Austrian population, and the Freedom Party has run a campaign against immigration.
While the presidency is a largely ceremonial post, the president has powers to dismiss the government – something Mr Hofer has already threatened to do.
And a Hofer victory could be the springboard for Freedom Party success in the next parliamentary elections, scheduled for 2018.
Polls opened at 07:00 (05:00 GMT) and close at 17:00, with projected results expected shortly afterwards.
However, postal ballots, which could be crucial if the result is close, will only be tallied on Monday.
In the first round, Mr Hofer, 45, secured 35% of the votes, while Mr Van der Belle polled 21%.
At his final election rally on Friday in Vienna, Mr Hofer, 45, sought to hammer home his message that immigrants needed to integrate.
“Those people who respect and love Austria and have found a new home here are warmly welcome,” he said to applause.
“But those, it has to be said, those who do not value our country, who fight for Islamic State, or who rape women, I say to these people: this is not your homeland. You cannot stay in Austria.”
The presidents of the European Commission and the European Parliament, Jean-Claude Juncker and Martin Schulz, have both expressed concern that Mr Hofer could win.
“I say to them very politely but firmly: we don’t take orders from Brussels or Berlin,” Mr Hofer said at the rally.
Mr Van der Bellen told his final rally in Vienna that it was likely to be a close race.
“I think it could be on a knife edge – 50-50 who will win, so this time, as with previous votes, but more than ever for this important election, every vote will count,” he said.
At a news conference, he reflected: “As you know, I am 72 years old and I’ve experienced how Austria rose from the ruins of World War Two, caused by the madness of nationalism.”
The two rivals had engaged in an angry TV debate earlier in the week, described as “political mud-wrestling” by commentators.
Ausria Graph
Source: BBC
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