A search for the rare decays B_{s}^{0}→μ^{+}μ^{-} and B^{0}→μ^{+}μ^{-} is performed at the LHCb experiment using data collected in pp collisions corresponding to a total integrated luminosity of 4.4 fb^{-1}. An excess of B_{s}^{0}→μ^{+}μ^{-} decays is observed with a significance of 7.8 standard deviations, representing the first observation of this decay in a single experiment. The branching fraction is measured to be B(B_{s}^{0}→μ^{+}μ^{-})=(3.0±0.6_{-0.2}^{+0.3})×10^{-9}, where the first uncertainty is statistical and the second systematic. The first measurement of the B_{s}^{0}→μ^{+}μ^{-} effective lifetime, τ(B_{s}^{0}→μ^{+}μ^{-})=2.04±0.44±0.05 ps, is reported. No significant excess of B^{0}→μ^{+}μ^{-} decays is found, and a 95% confidence level upper limit, B(B^{0}→μ^{+}μ^{-})<3.4×10^{-10}, is determined. All results are in agreement with the standard model expectations.