Bin Laden's demise marked the biggest triumph yet in the 10-year war against terrorism, which has led the United States into two bloody wars, transformed its foreign policy and reshaped many aspects of American life.
"Tonight, I can report to the American people and to the world that the United States has conducted an operation that killed Osama bin Laden, the leader of Al-Qaeda, and a terrorist who's responsible for the murder of thousands of innocent men, women and children," Obama said in a late night White House address.
Obama said he had directed covert, helicopter-borne US armed forces to launch an attack against a heavily fortified compound in Abbottabad, Pakistan on Sunday acting on a lead that first emerged last August.
"A small team of Americans carried out the operation with extraordinary courage and capability," Obama said. "After a firefight, they killed Osama bin Laden and took custody of his body."
"Justice has been done."
US media reports said that bin Laden's body had been buried at sea, according to Islamic traditions, in a bid to prevent his final resting place from becoming a shrine.
Senior US officials said two men believed to be bin Laden's couriers and one of his adult sons, were also killed in the raid, while a woman who was used as a human shield perished.
Other US officials said they were stunned when intelligence reports first revealed the elaborate security at the compound where bin Laden was hiding, with 12-18 foot (four-to-six meter) high walls topped with barbed wire.
A key to the operation was a long-running effort by American spy agencies to track a trusted courier for bin Laden, another senior US official said.
The operation will also likely go down as one of the most spectacular intelligence operations in US history, and provide a huge morale boost for the oft-criticized US clandestine community.
It marks a rare moment of national celebration, after grim years of war abroad and as America only slowly emerges from the worst recession in decades.
The huge coup may also enhance perceptions of Obama's leadership and help turn around his political fortunes a year ahead of his reelection bid.
Former US president George W. Bush, who was in office at the time of the September 11 attacks when almost 3,000 people died, said bin Laden's death was a "victory for America" and congratulated Obama and US intelligence and military forces.
"The fight against terror goes on, but tonight America has sent an unmistakable message: No matter how long it takes, justice will be done," Bush added in a statement.
In spontaneous celebrations, thousands gathered outside the gates of the White House, cheering, waving US flags and shouting "USA, USA."
Another large crowd gathered at Ground Zero singing "God Bless America."
"It's a miracle," said New Yorker Monica King, 22. "The attacks changed New York and now 10 years later we had our last word," she added, saying: "Now we want to celebrate."
Diane Massaroli, whose husband Michael was working on the 101st floor of the World Trade Center when the planes hijacked by Al-Qaeda struck, said it was a "bittersweet" moment, which had brought her some closure.
"I'm missing him all the time, but I feel that justice is done and that's a great feeling for me. And I do feel some overall calm, that I haven't felt in almost 10 years," she told CNN.
Obama said he had called Pakistani President Asif Ali Zardari after bin Laden's death and said cooperation with the uneasy US anti-terror ally had helped lead American forces to the terror chief.
But US officials admitted that they had not informed Islamabad about the operation before the strike took place.
US armed forces have been hunting the Saudi terror kingpin for years, an effort that was redoubled after Al-Qaeda terrorists riding hijacked airliners smashed into the World Trade Center in New York and the Pentagon in 2001.
A fourth passenger jet crashed in a remote area of Pennsylvania, apparently brought down after passengers revolted and tried to prevent it from reaching its target, assumed to be Washington.
Until Sunday, bin Laden had always managed to evade US armed forces, despite a 25-million-dollar reward on his head and a massive manhunt, and was most often thought to be hiding in the unruly Pakistan and Afghanistan border areas.
His death will raise huge questions about the future of Al-Qaeda and also have deep implications for US security and foreign policy 10 years into a global anti-terror campaign.
Bin Laden's demise will also cast a new complexion on the increasingly unpopular war in Afghanistan, where 100,000 troops are still battling the Taliban and Al-Qaeda.
Afghan President Hamid Karzai said bin Laden's killing in neighboring Pakistan proved Kabul's long-standing position that the war on terror was not rooted in Afghanistan.
"Again and again, for years and every day we have said that the war on terror is not in Afghan villages, not in Afghan houses of the poor and oppressed," Karzai told tribal elders.
Bin Laden was top of America's most wanted list, and was blamed by Washington for masterminding a string of attacks other than the September 11 strikes, including the bombings of US embassies in Kenya and Africa in 1998.
But he frequently taunted Bush, and then Obama after he took office in 2009, with taped messages.
Amid fears of retaliation by Al-Qaeda or other groups, the US State Department issued a global travel alert to all US citizens.
"The US Department of State alerts US citizens traveling and residing abroad to the enhanced potential for anti-American violence given recent counter-terrorism activity in Pakistan," it said in a statement.
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