Egyptian Vice President Omar Suleiman announced on national TV on Friday that Mubarak has stepped down and handed power to the military.
"In these difficult circumstances that the country is passing through, President Hosni Mubarak has decided to leave the position of the presidency," Suleiman said. "He has commissioned the armed forces council to direct the issues of the state."
Car horns were heard around Cairo in celebration after hearing the news. People were seen dancing in the streets, waving flags and lighting fireworks over Tahrir Square.
"This is the greatest day of my life. The country has been liberated after decades of repression," said Mohamed ElBaradei, the leading Egyptian democracy advocate.
Mubarak reportedly fled Cairo to his vacation home in the Red Sea resort of Sharm el-Sheikh.
President Barack Obama was informed of Mubarak's decision to step down during a meeting in the Oval Office. Obama then watched TV coverage of the scene in Cairo for several minutes in the outer Oval Office. He will make a statement at noon.
Thousands of angry people had gathered in Cairo in what was thought to be the biggest protest after Mubarak announced on Thursday night that he's not stepping down until next fall's election, and the country's army had announced that it supported the president's decision not to resign.
But the demonstrations have turned into a huge celebration. Protesters now say they will continue to demonstrate until change is carried out by the military.
In the meantime, Swiss officials have announced that they will be freezing any money linked to Mubarak and his family, saying they want to avoid misappropriation of Egyptian assets.
The army played a key role by allowing the protesters to gather, and it continued to do so on Friday. Experts in Southern California said the military was be the key to an orderly transfer of power.
"It's got not only the weapons, but it also controls a huge chunk of the economy, and these people do not want to see that chunk of the economy disappear," said UCLA professor of history James Gelvin.
The Associated Press contributed to this story.