Obama told the American people in a late night address that the al-Qaeda leader was killed in a ground operation outside Islamabad based on US intelligence after “a firefight”.
Mr Obama said Bin Laden’s body was in the possession of US forces.
The American president stressed that it was “the most significant achievement to date in our nation’s effort to defeat al-Qaeda”.
Bin Laden was accused of being behind a number of atrocities, including the attacks on New York and Washington on 11 September 2001.
Crowds gathered outside the White House in Washington DC, chanting “USA, USA” after the news emerged.
With a $25m bounty on his head, Bin Laden evaded capture for almost a decade. He had approved the 11 September 2001 attacks in which nearly 3,000 people died.
President Obama said he had been briefed last August on a possible lead to Bin Laden’s whereabouts. “It was far from certain, and it took many months to run this thread to ground.”
Obama: “I met repeatedly with my national security team as we developed more information about the possibility that we had located Bin Laden hiding within a compound deep inside of Pakistan.
“And finally, last week, I determined that we had enough intelligence to take action, and authorised an operation to get Osama Bin Laden and bring him to justice,” the president said.
The operation to capture Bin Laden took place on Sunday in Abbottabad, 100km north-east of Islamabad. After a “firefight” Bin Laden was killed and his body taken by US forces, the president said, adding “no Americans were harmed”.
A senior US official said a small US team had conducted the raid in about 40 minutes.
One US helicopted was lost due to “technical failure”. The team destroyed it and left in its other aircraft.
Three other men were killed in the raid – one of Bin Laden’s sons and two couriers – the official said, adding that one woman was also killed when she was used as “a shield” and two other women were injured.
US officials revealed that the size and complexity of the structure in Abbottabad had “shocked” them.
It had 4m-6m walls, was eight times larger than other homes in the area and was valued at “several million dollars”, though it had no telephone or internet connection.
The senior US official said that intelligence had been tracking a “trusted courier” of Bin Laden for many years. The courier’s identity was discovered four years ago, his area of operation two years ago and then, last August, his residence in Abbottabad was found, triggering the start of the mission.
According to another US senior official, no intelligence had been shared with any country, including Pakistan, ahead of the raid.
“Only a very small group of people inside our own government knew of this operation in advance,” the official said.
Reports say the Abbottabad residence is just 700m from the Pakistan Military Academy.
The senior US official warned that the possibility of revenge attacks had now created “a heightened threat to the homeland and to US citizens and facilities abroad”.
The official added that “the loss of Bin Laden puts the group on a path of decline that will be difficult to reverse”.
He said Bin Laden’s probable successor, Ayman al-Zawahiri, was “far less charismatic and not as well respected within the organisation”, according to reports from captured al-Qaeda operatives.
By ANA Correspondent in Washington