Phil Schiller, senior vice president of worldwide marketing at Apple, said the iPhone 5S is "the most forward-looking phone we have ever created." It will be available in silver, gold and "space gray" and will run a new chip, the A7, that is up to twice as fast as the A6.
The new device will have a fingerprint reader, called "Touch ID," so instead of entering a passcode, you can just touch the home button to unlock the phone.
The 5S will also have a better camera with larger pixels, called iSight. There's a two-tone flash feature that is designed not to clash with the colors in the room or a person's skin color - something that has never been done on a phone before, Schiller said. The camera also has "auto image stabilization" to avoid blurry pictures and a slow-motion camera for video.
The iPhone 5S will start at $199 with a two-year contract for the 16-gigabyte model. Pre-orders begin Friday and launches in stores on Sept. 20.
The company also announced a cheaper version, called the 5C. The phone is available in five colors - green, blue, yellow, pink and white.
The iPhone 5C will cost $99 for a 16-gigabyte model and $199 for a 32 gigabyte model with a two-year wireless contract.
With the introduction of the new iPhone models, Apple will be ending production of the iPhone 5.
Apple also showed off the new operating system, iOS 7. It features an improved Siri, new notification sounds, organization tools and an iTunes Radio app. Craig Federighi, head of software at Apple, said that "downloading iOS 7 is like getting an all new device."
The new system can be downloaded for free on the iPhone 4 and later models, as well as on the tablets beginning with the iPad 2, on Sept 18.
The company isn't expected to reveal the latest model of its tablet computer, the iPad, until later in the fall.
The Associated Press contributed to this report.