The plant at Neustadt-Glewe in northeast Germany taps into water from 2000 metres (6600 feet)) underground, where its temperature reaches 97 degrees Celsius (206 degrees Fahrenheit).
The energy produced by the high temperature is converted into steam, which in turn drives a turbine on the surface to produce electricity.
The plant, formally opened by Environment Minister Juergen Trittin, is expected to provide power for up to 500 homes in the area.
A spokeswoman for the geo-thermal research centre in Potsdam, near Berlin, said the German soil hid great unexploited potential as temperatures 3000 to 4000 metres down ranged from 100 to 170 degrees Celsius.
She said geo-thermal resources currently filled around 0.0003 percent of the country's energy needs.