Federal prosecutors say the second-term Democrat was caught on wiretaps scheming to sell Barack Obama's vacant Senate seat for cash or a plum job for himself in the new administration.
Prosecutors are not accusing Obama himself of any wrongdoing or even knowing about the matter.
Blagojevich is charged with conspiracy to commit fraud and solicitation to commit bribery.
He's also charged with illegally threatening to withhold state assistance to the owner of the Chicago Tribune, in an attempt to strong-arm the newspaper into firing editorial writers who had criticized him.
And Blagojevich is accused of engaging in pay-to-play politics: that is, doling out jobs, contracts and appointments in return for campaign contributions.
The governor's attorney, Sheldon Sorosky, says he doesn't know of any immediate plans for the governor to resign. Sorosky says Blagojevich believes he didn't do anything wrong and asks Illinois residents to have faith in him.
"We were in the middle of a corruption crime spree, and we wanted to stop it," U.S. Attorney Patrick Fitzgerald said, calling the charges against Blagojevich "a truly new low." He added: "The conduct would make Lincoln roll over in his grave."
Federal investigators bugged the governor's campaign offices and tapped his home phone, capturing conversations laced with profanity and tough-guy talk from the governor. Chicago FBI chief Robert Grant said even seasoned investigators were stunned by what they heard, particularly since the governor had known for three years was under investigation for alleged hiring fraud.
"This is another aggressive move by Fitzgerald, who is best known for indicting and convicting Lewis Scooter Libby on obstruction of justice charges in the CIA Leak case," said CBS News legal analyst Andrew Cohen. "Fitzgerald is an excellent trial attorney as well, so the
The FBI said in court papers that the governor was overheard on wiretaps over the last month conspiring to sell the Senate seat for campaign cash or plum jobs for himself or his wife, Patti, a real estate agent. He spoke of landing a job with a nonprofit foundation or a union-affiliated group, and even held out the possibility of a Cabinet appointment or ambassadorship for himself.
"I've got this thing and it's (expletive) golden," he said of his authority to appoint Obama's replacement, "and I'm just not giving it up for (expletive) nothing. I'm not gonna do it."
Another alleged scheme was that Blagojevich would possibly rescind an $8 million commitment of state funds to Children's Memorial Hospital in Chicago after a $50,000 donation from its chief officer did not materialize, reports CBS News correspondent Dean Reynolds.
Blagojevich faces two counts: Conspiracy to commit fraud, which carries a maximum penalty of 20 years in prison, and solicitation to commit bribery, which is punishable by up 10 years. He was released on his own recognizance.
He was the latest in a long line of Illinois governors to become engulfed in scandal. Blagojevich was elected in 2003 as a reformer promising to clean up after former Gov. George Ryan, who is serving six years in prison for racketeering and fraud.
John Drummond, who's covered Illinois politics for nearly half a century, told CBS News senior political correspondent Jeff Greenfield that corruption in Illinois is about as normal as frost in January.
"Illinois is probably the heavyweight champion of corruption in that sense; we've had five governors that have been indicted in this state," Drummond said.
The charges against Blagojevich do not identify by name any of the political figures under consideration for the Senate seat, calling them only "Candidate 1," "Candidate 2," and so on. However, those being considered for the post include: Reps. Jesse Jackson Jr., Danny Davis, Jan Schakowsky and Luis Gutierrez; Illinois Senate President Emil Jones; and Illinois Department of Veterans Affairs Director Tammy Duckworth.
Blagojevich spokesman Lucio Guerrero had no immediate comment on the charges but issued a statement saying the "allegations do nothing to impact the services, duties or function of the state."
"No appointment by this governor, under these circumstances, could produce a credible replacement," said Democratic Sen. Dick Durbin of Illinois.
Some Illinois politicians immediately demanded that the governor step down or face impeachment.
Also arrested was the Blagojevich's chief of staff, 46-year-old John Harris, who was accused of taking part in the schemes to enrich the governor.
Blagojevich also considered appointing himself to the Senate seat, telling his deputy governor that if "they're not going to offer me anything of value, I might as well take it," prosecutors said.
He said becoming a senator might remake his image for a possible presidential run in 2016, according to court papers. And he allegedly said that he would have access to greater resources if he were indicted while in the Senate.
Prosecutors said Blagojevich also talked about getting his wife placed on corporate boards where she might get $150,000 a year in director's fees.
In court papers, the FBI said Blagojevich expressed frustration at being "stuck" as governor. "I want to make money," the governor, whose salary is $177,412, was quoted as saying in one conversation.
The head of the FBI's office in Chicago said he phoned Blagojevich at 6 a.m., telling him of a warrant for his arrest and that there were two FBI agents at his door of his Chicago home. Blagojevich's first comment was, "Is this a joke?" Grant said.
Nothing in the court papers suggested Obama had any part in the discussions or knew of them - something Fitzgerald repeatedly made clear at Tuesday's news conference.
In fact, Blagojevich was overheard complaining at one point that Obama's people are "not going to give me anything except appreciation." He added: "(Expletive) them."
The conversations took place between Election Day and as recently as last week. On the recordings, Blagojevich was clearly aware authorities might be listening, warning one person not to use the phone and saying, "The whole world is listening. You hear me?"
Political fundraiser Antoin "Tony" Rezko, who raised money for the campaigns of both Blagojevich and Obama, is awaiting sentencing after being convicted of fraud and other charges. And Blagojevich's chief fundraiser goes on trial next year on obstruction charges.
The court papers also outline Blagojevich conversations related to Tribune Co., which has been hoping for state aid in selling Wrigley Field, the home of the Chicago Cubs. Blagojevich was quoted as telling his chief of staff, Harris, in a profanity-laced Nov. 4 conversation that Tribune executives should fire the editorial writers "and get us some editorial support."
Harris is later overheard telling the governor on Nov. 11 that an unnamed Tribune owner, presumably CEO Sam Zell, "got the message and is very sensitive to the issue."