The former budget minister's shock confession that he had a secret foreign bank account for more than 20 years containing 600,000 euros (£509,000) has plunged the Socialist government into crisis, sparking one of the worst political scandals in modern French history.
Members of the opposition Right have called for the resignation of both Jean-Marc Ayrault, the prime minister, and Pierre Moscovici, the finance minister, as well as a major reshuffle. Some 86 per cent of French people said in a survey that the scandal was "grave", with six in 10 saying it had been badly handled.
Desperately trying to contain the widening firestorm, Mr Hollande broadcast a hastily recorded televised address in which he insisted Mr Cahuzac "benefited from no protection other than the presumption of innocence and that he left the government at my request as soon as a judicial inquiry was opened". He also vowed to introduce a new law within weeks on the “publication and control” of the wealth of ministers.
The president, who on Wednesday flew to Morocco, promised to impose a life ban on holding political office on anyone convicted of corruption, reform France's top magistrate's body to strengthen the independence of the judiciary and enact a law on conflict of interest in politics. Ministers and MPs will be obliged to publish all their assets.
The announcement failed to stem a rising tide of questions over when and how he and his government became aware of the guilt of a top minister tasked with fighting tax evasion and slashing state spending.
"Either François Hollande knew nothing, and that's extremely serious because it means he showed a certain amount of naivety, or he knew and that means he lied to the French people," said Jean-Francois Cope, head of the main opposition right-wing UMP party.
Mr Hollande made no specific mention of when he found out, simply saying Mr Cahuzac had committed an "unpardonable fault and an outrage to the republic" by lying for four months to the Elysée and the National Assembly.
However, the respected investigative newspaper, Le Canard Enchainé reported that the president saw evidence pointing to Mr Cahuzac's possible guilt as long ago as December.
Mr Cahuzac, 60, previously a highly paid plastic surgeon, was sacked last month after the state prosecutor announced that the voice in a recorded telephone conversation from 2000, admitting ownership of an illegal, Swiss account, appeared to be the minister.
At the time, Mr Cahuzac denied the allegation, but on Tuesday he confessed after months of denials, admitting: "I was stuck in a spiral of lies."
Le Canard now alleges, citing police and political sources, that Mr Hollande was informed by his interior minister in December that the voice on the tax fraud recording was "likely" that of Mr Cahuzac.
Edwy Plenel, head of Mediapart, the investigative website that broke the story in December, said Mr Hollande 'has no excuse" for reacting so slowly to the scandal.
"(He) knew full well what everyone knew," he said.
Also in the firing line was Mr Moscovici, whom the opposition claimed had "sought to whitewash" his budget colleague and Mediapart claimed had "manipulated the tax administration to protect (Mr Cahuzac)".
Mr Moscovici denied the claims, insisting his former colleague had repeatedly lied to him "while looking me straight in the eyes".
It had been unclear what had pushed Mr Cahuzac to go public on his secret account. Yesterday, however, Swiss daily Le Temps said he was forced into doing so as a probe by Swiss justice officials at two banks, UBS and Reyl et Cie, confirmed that he had indeed held an account at both.
Mr Cahuzac reportedly opened an account at UBS in the early 1990s, and closed it in 2000, transferring his funds to Reyl et Cie. In 2010, he allegedly transferred his money from Reyl et Cie's Geneva branch to one on Singapore.
He faces a maximum prison terms of five years in prison for "laundering the proceeds of tax fraud".
In another twist, Le Monde reported that the lawyer who opened Mr Cahuzac's secret UBS account in 1992 is now a close advisor to Marine Le Pen, the leader of the far-Right, and one of Mr Hollande's most vociferous critics in the scandal.
Miss Le Pen dismissed suggestions she was aware of the offshore account due to her proximity to Philippe Péninque as "absolutely mad".