Merkel, who grew up in the communist East, was speaking at a memorial site to the 138 people killed in Berlin alone as they tried to flee the Soviet-allied state.
"The Berlin Wall, this symbol of state abuse cast in concrete, took millions of people to the limits of what is tolerable, and all too many beyond it," she said. "It broke them."
"Little wonder that after the border opened, people took apart the hated structure with hammers and chisels. Within a year it had all but vanished from the cityscape."
She said this was true for her reunified country and the world, "especially for the people in Ukraine, Syria, Iraq and in many, many other regions of the world where liberty and human rights are threatened or being trampled".
"It is a message of confidence in our ability to tear down walls today and in future, walls of dictatorship, violence, ideology and hostility," she said.
"Too good to be true? A daydream that will burst like a bubble? No, the fall of the Wall has shown us that dreams can come true."
"How could that date ever become a day of happiness and joy?" she asked.
Merkel thanked those abroad who paved the way for the historic events, from the Czech and Polish pro-democracy movements to Moscow's "glasnost" and "perestroika" reforms, saying that in 1989 "the Iron Curtain had already been torn".
"We Germans will never forget that the freedom and democracy movements in central and eastern Europe paved the way for the happiest moment in our recent history," she said.
She honoured the East Germans who found the courage to protest against a repressive regime that beat and arrested demonstrators, and which in June 1989 openly praised China's bloody Tiananmen Square crackdown.
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