Fulfilling a campaign promise, he's ordering a massive withdrawal of U.S. troops over the next year and a half.
It's a slower withdrawal than he promised, but this drawdown is a major shift in U.S. policy.
"We sent our troops to Iraq to do away with Saddam Hussein's regime - and you got the job done," said President Obama. "By august 31, 2010, our combat mission in Iraq will end."
Sources say the bulk of this drawdown will happen after Iraqi elections in December.
After consulting with military commanders Mr. Obama's leaving up to 50,000 soldiers in Iraq after his 2010 deadline.
It's a slower and smaller pullout than many democrats wanted.
War veteran and former presidential rival John McCain calls the plan risky, but reasonable.
"I am cautiously optimistic that the plan as laid out by the president can lead to success," said McCain.
McCain credits President Bush's troop surge saying it paved the way for this withdrawal.
Military experts say leaving a significant number of troops behind is critical:
"The jury is out on what's really gonna happen in Iraq will it turn into civil war," said retired Army General Barry McCaffrey. "We darn sure shouldn't leave a huge force of 50,000 people on the ground without a robust protection capacity."
Those remaining troops will be charged with training Iraqi soldiers, protecting civilians and rooting out terrorists.
The absolute deadline to remove all U.S. troops from Iraq is the end of 2011 under a deal worked out by President Bush.