However, some 35,000-50,000 troops will remain to support the Iraqi government and security forces.
In a speech at the Camp Lejeune Marine base in North Carolina, Mr Obama said 'Iraq is not yet secure' and difficult days lay ahead, but he said his administration intended to remove all US forces from Iraq by the end of 2011.
Mr Obama also named veteran diplomat Christopher Hill as the new US ambassador to Iraq.
Mr Obama said he would pursue 'principled and sustained' engagement with all Middle Eastern nations including Iran and Syria.
He also told Iraq that the US pursues no claim on its territory, seeking to reassure Iraqis concerned about a lengthy US military presence there.
Mr Obama used part of a speech to talk directly to Iraqis.
'The United States pursues no claim on your territory or your resources. We respect your sovereignty and the tremendous sacrifices you have made for your country. We seek a full transition to Iraqi responsibility for the security of your country,' he said.
