The transition was agreed to last year as part of the United States' status of forces agreement with Iraq.
"It's part of our strategy to responsibly end the war," Mr. Obama said, adding that all American troops would be removed from Iraq by the end of 2011.
"This is an important step forward as a sovereign and united Iraq continues to take control of its own destiny," the president said.
The United States will continue to be a strong partner for Iraq as it works to resolve political differences and other challenges, he said.
"There will be difficult days ahead," Mr. Obama said. "We know that the violence will continue."
On Tuesday, a car bomb that exploded in a crowded outdoor market killed at least 27 people. Four U.S. troops were also killed Tuesday. Mr. Obama said, however, that today's transition is "further proof those who have tried to pull Iraq into the abyss... are on the wrong side of history."
The president also praised the courage, capability and commitment of the American troops.
"There is more work to be done, but we've made important progress in supporting a sovereign, stable self-reliant Iraq."