Gu Kailai did not contest charges at her one-day trial that she poisoned Neil Heywood in November 2011.
Suspended death sentences are usually commuted to life imprisonment in China.
Bo Xilai, the former communist party chief in Chongqing, was once seen as a contender for a national leadership position in a top-level reshuffle later this year.
But he has not been seen in public since the investigation into Gu Kailai was announced.
Gu Kailai’s aide, Zhang Xiaojun, was jailed for nine years for his part in the murder.
The verdict in China’s most high-profile trial for years came early on Monday, inside a court ringed by security personnel.
Chinese state media reported that during the 9 August trial – which was not open to all – Gu Kailai admitted she poisoned Neil Heywood in a hotel room in Chongqing, helped by her aide.
She said she had suffered a mental breakdown and that Neil Heywood had threatened her son amid a row over a property deal, state media said.
Images shown on Chinese state television showed Gu Kailai responding to the verdict.
“This verdict is just. It shows special respect for the law, reality and life,” she said.
Speaking after the sentence was announced, court spokesman Tang Yigan said the court believed Neil Heywood had threatened Gu Kailai’s son but not acted on the threats. It also found Gu had been suffering from “psychological impairment”, he said.
In a statement, the British embassy in Beijing said its thoughts were with the family of Neil Heywood.
“We welcome the fact that the Chinese authorities have investigated the death of Neil Heywood, and tried those they identified as responsible,” the statement said.
“We consistently made clear to the Chinese authorities that we wanted to see the trials in this case conform to international human rights standards and for the death penalty not to be applied.”
A lawyer for the Heywood family said they respected the court’s decision.
The sentence of death with a two-year suspension means that if Gu Kailai commits no crimes while in prison, her sentence will be commuted after two years to life imprisonment and could be further reduced for good behavior, Chinese legal expert Professor Donald Clarke writes in his blog.
Chinese internet users reacted immediately to the verdict on Twitter-like microblogging platforms.
With key names connected to the case still apparently censored, most used the phrase “suspended death sentence”. Within two hours, there were at least two million posts.
Many users expressed dissatisfaction, saying most murderers in China would be executed. Some attributed it to Gu Kailai’s background, others suggested she could eventually be freed under medical parole.
At a separate trial on 10 August, four senior police officers from Chongqing admitted charges of covering up evidence linking Gu Kailai to the murder. A court official said they had been given terms of between five and 11 years in prison, AFP reported.
Neil Heywood’s death was initially recorded as a heart attack.
The case came to light when Bo Xilai’s deputy, police chief Wang Lijun, fled to the US consulate in February, reportedly with information connected to the case.
He has not been seen in public since then and state media say he is being investigated.
It is not yet known how the Communist Party plans to deal with Bo Xilai, once seen as a powerful and ambitious high-flier.
Many analysts expected him to be promoted to the nine-strong politburo Standing Committee later in the year.
Seven committee members are due to retire, with a new generation of leaders to take their place at a party congress expected later this year.
But Bo Xilai has been stripped of his official posts and is being investigated for “discipline violations”, state media reports say.
A lengthy Xinhua news agency write-up of Gu Kailai’s trial, however, made no mention of Bo Xilai.
BO XILAI SCANDAL
• 6 February: Chongqing police chief Wang Lijun flees to the US consulate in Chengdu
• 15 March: Bo Xilai is removed from his post in Chongqing
• 20 March: Rumors suggest Bo Xilai could be linked to the death of British businessman Neil Heywood
• 10 April: Bo Xilai is suspended from party posts and his wife, Gu Kailai, is investigated over Neil Heywood’s death
• 26 July: Gu Kailai and Bo family employee Zhang Xiaojun are charged with killing Neil Heywood
• 9 August: Gu Kailai goes on trial for murder
• 20 August: Gu Kailai given suspended death sentence
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