The president said a total of 33,000 troops would be withdrawn from Afghanistan by summer of 2012 as the U.S. mission shifts from combat to support.
Obama said 10,000 of those troops will come home by the end of 2011 - fulfilling Obama's promise - as he announced what he called "the beginning but not the end of our effort to wind down this war."
After the 33,000 troops are gone, about 70,000 will remain until the transition is complete in 2014, and even then a sizable and enduring contingent may remain in a different role.
Speaking from the White House, the president said conditions are right now to start drawing it to a close.
It's been a decade of human sacrifice: More than 12,000 Americans wounded and 1,500 killed.
"Over the past 18 months our troops have made tremendous progress degrading the capability of the Taliban while enhancing the Afghan security forces," said Defense Secretary Robert Gates in a statement released by Pentagon Press Secretary Geoff Morrell. "It is critical that we continue to aggressively prosecute that strategy. I support the President's decision because it provides our commanders with enough resources, time and, perhaps most importantly, flexibility to bring the surge to a successful conclusion."
On Capitol Hill, the debate has been furious, with some calling for a major drawdown.
"There are concerns among the American people who are tired of a decade of war," said Secretary of Defense Robert Gates.
"I believe it is time for us to rebuild America, not Afghanistan," said Sen. Joe Manchin of West Virginia.
Others, echoing some military leaders, say too fast is too dangerous.
"I'm pleased that the senator from West Virginia went to Afghanistan once," said Sen. John McCain of Arizona. "I would suggest that he consult with the people who know best, that since 2009 when the surge began, we have had success on the ground in Afghanistan."
Manchin responded to McCain saying, "I did not see an improvement. I saw deterioration. I saw a corrupt leadership, and I saw nothing good coming of it."
When Obama took office, there were just 34,400 U.S. troops in Afghanistan. Today, there are nearly 100,000 troops.
But the end appears to be in sight, and Obama is hoping to pave the way for Afghans to control their own security by 2014. The troop drawdown is expected to take place over the next 12 months.
The Associated Press contributed to this report.