Daley won on the strength of a booming local economy, a highly publicized school reform program and sweeping efforts to give the nation's third-largest city a facelift.
With 90 percent of precincts reporting Tuesday night, Daley had 73 percent of the vote, compared to 27 percent for Rush. The election was nonpartisan, with Daley avoiding a runoff by receiving more than half the vote.
Daley told cheering supporters that his victory was "a vote of confidence in our city and the direction we have charted together."
"Today the people of Chicago said they want us to continue to reform our public schools and work toward that day when every child graduates with a real diploma and a real opportunity to pursue their dream," he added.
In conceding defeat Rush praised his supporters, who he said "stood up against the odds...against all the enormous resources that were aimed at me."
Daley, first elected in 1989, is the son of Richard J. Daley, who was mayor for 21 years and boss of the now-extinct Chicago political machine.
The 56-year-old mayor has drawn national attention for his drive to upgrade Chicago's schools, once described as the nation's worst.
Rush, 52, represents a mostly black, South Side district. He was a Black Panther leader in the 1960s but joined the mainstream and was a Chicago alderman before going to Capitol Hill.
During the campaign, Daley pointed to his education campaign as a major achievement, declaring schools "the heart and soul of Chicago," while Rush said it was a flop, noting that the dropout rate is still 50 percent.
He described Daley's popular schools chief, Paul Vallas, as "the P.T. Barnum of public education," and promised to bolster grass-roots councils that were set up to decentralize authority in the school system prior to Daley's reform drive.
Daley buried the professorial-looking Rush in the fund-raising contest and blanketed television with slick ads saying the city has changed for the better in the decade that he has ruled City Hall.
As Rush cast his ballot Tuesday, he said he was pleased that issues, not race, had dominated his campaign.
©1998 CBS Worldwide Corp. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report