The importance of electronic correlation effects in the layered perovskite Sr$_2$RuO$_4$ is evidenced. To this end we use state-of-the-art LDA+DMFT (Local Density Approximation + Dynamical Mean-Field Theory) in the basis of Wannier functions to compute spectral functions and the quasiparticle dispersion of Sr$_2$RuO$_4$. The spectra are found to be in good agreement with various spectroscopic experiments. We also calculate the $textbf{k}$-dependence of the quasiparticle bands and compare the results with new angle resolved photoemission (ARPES) data. Two typical manifestations of strong Coulomb correlations are revealed: (i) the calculated quasiparticle mass enhancement of $m^*/m approx2.5$ agrees with various experimental results, and (ii) the satellite structure at about 3 eV binding energy observed in photoemission experiments is shown to be the lower Hubbard band. For these reasons Sr$_2$RuO$_4$ is identified as a strongly correlated 4$d$ electron material.
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