After taking the oath of office, Barack Obama said America’s possibilities were limitless as it emerged from a decade of war and a long economic crisis.
Barack Obama, 51, who is the 44th US president, was sworn in to his second term by Chief Justice John Roberts.
Hundreds of thousands of people thronged the National Mall ceremony.
Former Presidents Bill Clinton and Jimmy Carter, along with dozens of senators, congressional leaders and other dignitaries attended the event at the US Capitol.
In his inaugural address, President Barack Obama laid out his vision for the next four years.
“This generation of Americans has been tested by crises that steeled our resolve and proved our resilience,” he said.
“A decade of war is now ending. An economic recovery has begun. America’s possibilities are limitless.”
He added: “My fellow Americans, we are made for this moment, and we will seize it – so long as we seize it together.”
In a roughly 18-minute address, Barack Obama called for “collective action” to preserve American freedom, which he linked to social and economic equality.
“We, the people, understand that our country cannot succeed when a shrinking few do very well and a growing many barely make it,” he said.
“We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else, because she is an American, she is free, and she is equal, not just in the eyes of God but also in our own.”
Without making specific policy recommendations, Barack Obama said the US must overhaul the tax code, reform its education system, revamp the voting system, and address climate change.
“Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms,” he said.
He also alluded to the struggles of women, racial minorities and gays to win social equality, saying “the most evident of truths – that all of us are created equal – is the star that guides us still”.
And after four years of hyper-partisan struggle, during which he has repeatedly tussled with Republicans, Barack Obama challenged Washington to change the tone of its politics.
“We cannot mistake absolutism for principle, or substitute spectacle for politics, or treat name-calling as reasoned debate,” he said.
As he was sworn in on Monday, Barack Obama placed his left hand on Bibles owned by legendary American civil rights leader Martin Luther King Jr. and President Abraham Lincoln.
According to the words prescribed by the US Constitution, Barack Obama swore he would “faithfully execute the office of president of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States”.
Vice-President Joe Biden also publicly took the oath.
Barack Obama was also sworn in at a small White House ceremony on Sunday, as the US Constitution dictates presidential terms begin on 20 January.
Following Monday’s ceremony, Barack Obama will have the traditional lunch with US lawmakers in the capitol building’s Statuary Hall.
The president is also expected to walk at least part of the parade route down Pennsylvania Avenue toward the White House.
The zone surrounding the National Mall in the US capital is in virtual lockdown, with movement of people and vehicles tightly restricted.
White tents, trailers and generators line the parade route, while nearby buildings have been adorned with red, white and blue bunting.
Officials estimate about 700,000 people were to attend the inauguration, down significantly from 2009, when about 1.8 million people witnessed Barack Obama be sworn in as America’s first black president.
In the evening, the Obamas will don formal evening attire for several lavish inaugural balls in Washington.
About 260,000 people attended George W. Bush’s second inauguration ceremony in 2005.
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