Moncoutie, who won his first stage of the race last year, thus succeeds former professional Richard Virenque in handing the hosts a victory on this national holiday.
Race leader Lance Armstrong and the rest of the challengers for the yellow jersey were still to come in with the main peloton.
Moncoutie escaped from a group of breakaway companions on the fourth of the day's five climbs on what was the third and last day in the Alps following two killer climbing days which took their toll.
In second place was another Frenchman Sandy Casar, who held off Spaniard Angel Vicioso at the finish line around 20 seconds later.
A further three minutes later Norwegian Thor Hushovd held off green jersey rival Stuart O'Grady at the finish to reinforce his lead over the Australian in the points classification, following the earlier abandon of Belgian Tom Boonen due to injury before the stage.
Although a respected climber of medium-sized climbs, Moncoutie is also known for his fear of fast descents -- something which his team manager has tried to correct for the past two seasons.
His lead at the summit of the day's second category two climb, the Col du Corobin, 35km from the finish was only 40 seconds and Axel Merckx's chasing group was giving chase.
Merckx's lack of fear on the tricky downhill sections was beginning to pay dividends. The Belgian, who won a similar, undulating stage on the Dauphine Libere stage race a month ago, soon left his breakaway companions in his wake in a bid to catch Moncoutie.
His victory aims might have been twofold. As well as hoping to claim his first stage win on the Tour de France, Merckx would have done so 36 years after his legendary father Eddy claimed victory the last time a Tour stage finished here, in 1969.
Moncoutie, however, was hanging on well. As he raced to reach the foot of the day's last climb, a 2.7km long category four whose average gradient was a relatively easy 3.9 percent, he held a 25-second lead on Merckx, who had been rejoined by his earlier companions.Franck Fife/AFP/Getty Images Frenchman David Moncoutie's raises his fists in triumph as the first French rider to win a stage of this year's Tour
Moncoutie began the short climb to the summit of the Col de l'Orne with a 30-second lead on the chasing group however the painful expression on the Frenchman's face suggested he might not make it to the finish.
Behind him, and with 12km to race to the finish including the 2.7km climb, Merckx's group began to take turns leading the chase although their loyalty to each other in catching the Frenchman did not last too long.
Vicioso, who had been struggling a half hour earlier, attacked and soon Merckx followed. The rest of the seven-man group followed and they soon came over the summit and began their chase on the descent.
Again, the pursuers began to break off on their own. Catching Moncoutie would have been easier had they worked together but with the finish line less than 10km away the selfish option had become more attractive.
At the five kilometers to go mark Moncoutie's lead had dropped slightly to 25 seconds. But with the chasing group failing to organize a decent pursuit behind him, the Frenchman's win looked secure.
Moncoutie came over the finish line shaking his fists in triumph. Last year, it was Virenque, who is now retired, who handed the hosts their reason to smile a little wider on Bastille Day.
Top 10 results, Stage 12: Briancon - Digne-les-Bains (187 km)
1. David Moncoutie (FRA/COF) 4:20:06 (average: 43.1kmh)
2. Sandy Casar (FRA/FDJ) @ 0:57
3. Angel Vicioso (SPA/LTY) 0:57
4. Patrice Halgand (FRA/C.A) 0:57
5. Jose Luis Arrieta (SPA/BAL) 0:57
6. Franco Pellizotti (ITA/LIQ) 0:57
7. Axel Merckx (BEL/DAV) 0:57
8. Juan Manuel Garate (SPA/SDV) 0:57
9. Thor Hushovd (NOR/C.A) 3:15
10. Stuart O'Grady (AUS/COF) 3:15
Stage 12: Complete results
Top 10, Overall standings
1. Lance Armstrong (USA/DIS) 46:30:36
2. Michael Rasmussen (DEN/RAB) @ 0:38
3. Christophe Moreau (FRA/C.A) 2:34
4. Ivan Basso (ITA/CSC) 2:40
5. Alejandro Valverde (SPA/BAL) 3:16
6. Santiago Botero (COL/PHO) 3:48
7. Levi Leipheimer (USA/GRL) 3:58
8. Francisco Mancebo (SPA/BAL) 4:00
9. Jan Ullrich (GER/MOB) 4:02
10. Andreas Kloden (GER/MOB) 4:16
Stage 12: Complete overall standings
Stage 12: Category standings