Former Arkansas governor Mike Huckabee wins on the Republican side
The Illinois senator captured the first Democratic prize on the road to the White House with a comeback win over former North Carolina Sen. John Edwards, who edged out one-time front-runner Clinton for second.
"We are choosing hope over fear, we are choosing unity over division and sending a powerful message that change is coming to America," Obama, 46, told thousands of cheering, chanting and foot-stamping supporters.
The third-place finish was a huge blow for Clinton, 60, the former first lady who a few months ago was considered in some quarters the almost certain Democratic nominee. She now faces immense pressure to turn around her campaign in New Hampshire over the next five days.
"Today we are sending a clear message that we are going to have change, and that change will be a Democratic president in the White House," Clinton, with husband and former President Bill Clinton at her shoulder, said in Des Moines.
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Senator Barack Obama and wife Michelle and their daughters after his victory in Iowa
Obama's win effectively makes him the candidate to beat among Democrats, and a win next week in New Hampshire could put him in prime position to capture the nomination. After Nevada on January 19, the next big contest would be in South Carolina, where more than half of the voters in the Democratic primary are likely to be black.
Obama finished with 38 percent of the vote, easily beating Edwards at 30 percent and Clinton at 29 percent. New Mexico Gov. Bill Richardson finished fourth at 2 percent.
Huckabee finished with 34 percent of the vote, ahead of Romney's 26 percent. Arizona Sen. John McCain and former Tennessee Sen. Fred Thompson were tied at 13 percent, with Texas Rep. Ron Paul at 10 percent.
Entrance polls showed Obama won big among young voters and even beat Clinton among women voters as his message of change resonated with voters.
Here is Obama's victory speech:
Meanwhile on the Republican side ...
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Mike Huckabee
Mike Huckabee capped a stunning political rise to beat rival Mitt Romney in Iowa, despite being dramatically outspent by the wealthy former Massachusetts governor and venture capitalist.
Both Obama and Huckabee, 52, a former Arkansas governor and ordained Baptist minister, once trailed better-known rivals Clinton and Romney in their race to be on the November election ballot.
But they rode a wave of grass-roots enthusiasm to victories by touting an outsider's message of change in Washington.
"Tonight what we have seen is a new day in American politics," Huckabee, with actor and supporter Chuck Norris nearby, told cheering backers in Des Moines. "Tonight we proved that American politics is still in the hands of people like you."
The 2008 campaign is the most open presidential race in more than 50 years, with no sitting president or vice president seeking their party's nomination, and the Iowa contest was the most hotly contested in the state's history.
Turnout among Democrats topped 220,000, smashing the previous record of 124,000 in 2004 -- testament to the high enthusiasm among Democrats heading into November's election.
For the winner in Iowa, the prize is valuable momentum and at least a temporary claim to the front-runner's slot in the battle to win the party's presidential nomination in the November election.
All eyes now turn to New Hampshire, which holds the next contest on Tuesday and where Romney and Clinton will face high-pressure bids to revive their candidacies.
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