The indictment charges the utility with 12 felony violations of federal pipeline safety laws, which could carry a total possible fine of $6 million, or more if the court decides it somehow benefited financially from the disaster.
Federal prosecutors allege that PG&E knowingly relied on erroneous and incomplete information when assessing the safety of the pipeline that eventually ruptured, sparked a fireball and leveled 38 homes in San Bruno.
Nearly four years later, the neighborhood where eight were killed and dozens injured is still recovering.
"The citizens of Northern California deserve to have their utility providers put the safety of the community first," U.S. Attorney Melinda Haag said in a news release.
The indictment accuses the company of failing to act on threats in its pipeline system even after the problems were identified by its own inspectors.
About a year after the explosion, investigators with the National Transportation Safety Board found that these lapses by PG&E led to the blast.
The board also characterized the explosion as an "organizational incident," not a simple mechanical failure.
The indictment was met with applause by San Bruno officials.
"The indictment validates the city's position that there was gross mismanagement and negligence," said Connie Jackson, the city manager.
"What San Bruno hopes is that the criminal indictment brings a measure of justice and closure for the citizens and victims."
California Attorney General Kamala Harris also hailed the indictment.
"Today's indictment is an important step in providing justice for the individuals, families and community devastated by the 2010 pipeline explosion and fire in San Bruno," Harris said.
PG&E Chairman and CEO Tony Earley said Tuesday the company is holding itself accountable and is deeply sorry.
"We have worked hard to do the right thing for victims, their families and the community, and we will continue to do so," Earley said in a statement. "We want all of our customers and their families to know that nothing will distract us from our mission of transforming this 100-plus-year-old system into the safest and most reliable natural gas system in the country."
PG&E Corp., the parent company of PG&E, said Tuesday in a statement on its website that the "federal criminal charges filed today have no merit."
"PG&E believes that its employees did not intentionally violate the federal Pipeline Safety Act, and that even where mistakes were made, employees were acting in good faith to provide customers with safe, reliable and affordable energy," the statement added.
It is rare but not unprecedented for a pipeline company to be charged with criminal safety laws.
Federal prosecutors previously investigated Olympic Pipe Line Co. in Washington state after an explosion in 1999 killed three people. That blast was caused by a ruptured line that spilled more than 225,000 gallons of gasoline into creeks running through a public park in Bellingham, Wash.
That federal investigation ultimately resulted in prison or probation terms for three company officials and a settlement requiring $112 million in penalties and safety improvements.
While no individual PG&E officials or employees have been charged criminally, prosecutors could file so-called superseding indictments naming individuals if the investigation warrants.
Under the charges in this indictment, PG&E could be fined $500,000 for each count or a larger amount if it's determined the company financially gained as a result of the violations or loss caused to the victims.