He also said that emergency military patrols set up at sensitive sites nationwide after the January attacks would be made permanent, with a 7,000-strong force dedicated to internal security.
The announcements came nearly four months after jihadists went on a three-day killing spree in Paris, leaving 17 people dead and putting France and neighbouring European countries on high alert.
Speaking after calling a defence council, Hollande said the decisions were taken to ensure France's internal security but also the safety of military forces currently engaged in operations abroad, such as in the troubled Sahel region of Africa or in the Central African Republic.
The French leader did not say how much of a percentage rise the budget increase represents, nor did he say where cash-strapped France would find the money.
But according to a law fixing defence targets for 2014 to 2019, pouring in an extra 3.8 billion euros (USD 4.2 billion) in funds over four years would represent a roughly three percent increase to an overall total of 131 billion euros.
"It's a significant effort, it's even a very big effort," Hollande said, acknowledging France's ballooning budget deficit and its ongoing quest for growth and jobs.
France had originally planned steep cuts in defence spending, forced to save much-needed cash despite the need to ensure ongoing security.
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