Republicans clinched 58 seats, giving them 239 seats to the Democrats' 187, with nine yet to be decided.
The Democrats managed to hold onto a slim majority in the Senate. Democrats now have 52 senators, including independents who caucus with them. The republicans now have 46 with two races still undecided - Washington State and Alaska remain too close to call.
Colorado was also too close to call until Wednesday afternoon, Democratic incumbent Sen. Michael Bennet beat out Republican challenger Ken Buck in a tight battle, with 97 percent of precincts reporting.
In one night--with dozens of seats in Congress picked up--Republicans told President Barack Obama they intend to take change in a new direction.
Rep. John Boehner (R-Ohio) is now in line to be the next Speaker of the House.
During a press conference Wednesday morning, Boehner pledged that Republicans will use their new majority to seek a "smaller, less costly, and more accountable government," and said he hoped the president would join them.
A top Republican issue has been repealing the health care reform legislation.
"I'm convinced we will have the votes out of the House of Representatives, but when we talk about a repeal, we will replace it with a plan that can immediately bring the cost of health insurance down," Boehner said.
They won't have to contend with outgoing majority leader Nancy Pelosi.
"Today is a day to congratulate John Boehner and the Republicans, talk to my colleagues who are not coming back, and to respect the wishes of the American people," Pelosi said in an interview with ABC's Diane Sawyer Wednesday.
Senate Republican Leader Mitch McConnell (R-Kentucky) joined Boehner at the news conference and said that Democrats who lost learned the lesson that "choosing the president over your constituents clearly doesn't work."
McConnell said that Republicans will "work with the administration when they agree with the people and confront them when they don't."
Obama called Boehner around midnight to congratulate him.
The White House said the president spoke about working with Republicans to find common ground and getting things done for the American people.
At an hour-long news conference on Wednesday, the president called the Republican victories a shellacking and said he has to take direct responsibility for not making progress on the economy or creating jobs.
"What they were expressing great frustration about is the fact we haven't made enough progress on the economy. We have made progress, but people all across America aren't feeling that progress," Obama said.
Obama also said the outcome of the election is a reminder that power in the country rests not with elected officials, but with the citizens. He also said that no political party will be able to dictate the direction the country will take.
Obama said he's going to have to sit down with the new House leaders and see how they can work together. The president said that Tuesday's vote confirms what he's been hearing as he's traveled the country, that people are deeply frustrated with progress on the economy.
He was asked if voters were also rejecting his agenda.
"They understand I'm president of the United States and my core responsibility is to see we have economic growth. I have to take direct responsibility for the fact that we have not made as much progress as we need to make," said Obama.
The president said he knows it will not be easy but said he's eager to hear good ideas from whoever proposes them.
He won't have a Democratic majority to carry those ideas through the House, and he will have a Republican majority that has already indicated they will be fighting much of the president's agenda.
The vote means a change of offices in the Capitol. The new Republican leaders will be moving into new offices. Or in at least one case, back into an old office lost when Democrats took over.
San Dimas Republican David Dreier will take back chairmanship of the powerful House Rules Committee.
"We are going to be talking about how we can deal with this No. 1 priority of job creating and the best way is no tax increase at this challenging time," said Dreier.
Obama indicated he might agree to Republican demands that all tax cuts be allowed to continue instead of abandoning those for upper-income families.
In Nevada, Democrat Harry Reid won his race and will likely remain the Senate Majority Leader.
"We're going to come back stronger than ever," said Reid.
Reid survived the toughest race of his career as he defeated Tea Party-backed Sharron Angle in Nevada.
Christine O'Donnell lost to Democrat Chris Coons in Delaware. But other Republican candidates celebrated.
"We've come to take our government back," said Rand Paul, who won in Kentucky.
Marco Rubio will be Florida's newest Senator.
"A second chance for Republicans to be what they said they were going to be not so long ago," Rubio said.
In exit polls, 62 percent of voters said the economy was the most important issue this election--costing long-term Democrats, such as, Wisconsin's Russ Feingold their jobs.
The power shift dramatically changes the dynamics in Washington, D.C. It could also affect California, especially cities like Los Angeles, which has had clout in both the House and Senate.
It is a new era of divided government. The Senate Democratic majority still has the power to block any major legislation coming from the Republican-controlled House.
The Associated Press Contributed to this report.