The China president made the comments on Wednesday in a speech marking the 40th anniversary of a policy statement that eventually led to a thaw in relations with the self-ruled island.
However, he also warned that China reserved the right to use force.
While Taiwan is self-governed and de-facto independent, it has never formally declared independence from the mainland.
Beijing considers the island to be a breakaway province.
Xi said both sides were part of the same Chinese family and that Taiwanese independence was "an adverse current from history and a dead end".
Taiwanese people "must understand that independence will only bring hardship," Xi said, adding Beijing would never tolerate any form of activity promoting Taiwanese independence.
Instead, unification was "an inevitable requirement for the great rejuvenation of the Chinese people", he argued.
He also stressed that relations with Taiwan were "part of China's domestic politics" and that "foreign interference is intolerable".
Beijing "reserves the option of taking all necessary measures" against outside forces that interfere with peaceful reunification and Taiwanese separatist activities, he said, repeating a long-standing warning.
What is the view in Taiwan? One day ahead of Xi's speech, Taiwan's president Tsai Ing-wen said Beijing should accept the existence of Taiwan and use peaceful means to resolve its differences.
"I would like to call on China to face squarely the reality of the existence of the Republic of China on Taiwan," Tsai said, referring to the island's formal name.
China should "respect the insistence of 23 million people on freedom and democracy, and must use peaceful, on parity means to handle our differences", she added.
In November, Tsai's political party saw a heavy setback in regional elections perceived by Beijing as a blow to her separatist stance.
Why is this so contentious? Taiwan is a self-governed democracy and for all practical purposes has acted as an independent nation since 1950, when China's nationalist government was defeated by communist forces and fled there from the mainland.
China however considers the island to be a renegade province - not a country in its own right - which will one day be fully reunited with the mainland.
In recent years, Beijing has become increasingly assertive over its claims and what it says is a key question of national sovereignty.
China, for instance, insists that other countries can only have diplomatic ties with China or Taiwan, not both.
Beijing has won over more and more of Taipei's few international allies to cut diplomatic ties with the island and establish relations with China instead.
Last year, it also forced foreign airlines and hotels to list Taiwan as part of China on their websites.