I cannot understand Martin's answer, while I think that there is an excellent physical answer to the OP.
Most people forget that a Dirac's delta can be approximated by very many functions, as some parameter (say, $\sigma$) tends to zero. One such class of functions is of course $f(x) = (\sqrt{\pi}/\sigma) exp (-x²/\sigma²)$. Let us take this as an approximation to the probability distribution (not the wave function) of a quantum state representing a particle confined at the origin of coordinates. This function is smooth, integrable, normalized to 1.
Its associated wave-function, $\phi(x) = (\sqrt{\pi}/\sigma)^{1/2} exp (-x²/(2\sigma²))$ is also smooth and integrable over the same interval, and the value of this integral $\rightarrow 0$ as $\sigma \rightarrow 0$.
But we do not really care about the integrability of the wave-function per se, only that it yields meaningful results when we compute transition amplitudes. And for an arbitrary wave function $\psi(x)$ the transition amplitude is always proportional to
$\int \psi(x) \phi^*(x) dx$
which can be easily computed from the above in the limit $\sigma \rightarrow 0$: it always yields $0$, unless $\psi(x) = \phi(x)$, in which case it yields $1$. Does this make sense? Yes it does: whenever $\psi$ is not the wave function of a particle confined at the origin (i.e., when it represents a particle confined elsewhere, or when it represents a particle not confined at all) the two wave functions are orthogonal because they represent completely different physical states: the integral above (when squared) is the probability that an arbitrary quantum state be found at precisely the origin, which of course is zero for both smooth probability distributions and for particles confined at point which is not the origin.
Hence it makes perfect sense that the integral above vanishes, unless $\psi=\phi$ when it must yield certainty ($=1$).
To sum up, the wave function of a state representing a particle confined at the origin exists, is smooth and integrable so long as $\sigma > 0$, but we do not worry about that (at least from a physical point of view) because the wave function is not in itself an observable, because all we care about is that transition amplitudes exist, and these exist and make physical sense even in the limit $\sigma\rightarrow 0$.
The method of replacing a Dirac's delta with its approximants often leads to quite sensible answers.