Crowds cheered and waved as the cars rolled slowly past.
Then the motorcade stopped and the couple stepped out of the car and walked, waving to the hundreds of wellwishers lining the route - many of whom had waited 10 hours in the cold.
President Obama and First Lady Michelle Obama's first dance
After climbing back inside the limousine - so heavily armoured it is known as The Beast - the president and first lady emerged once again amid loud cheers and screams from the crowd.
The BBC's Gavin Hewitt, in the crowd on the parade route, said the happy and smiling Mr and Mrs Obama finally seemed able to celebrate their achievement.
Many thousands of people who braved the cold to stand for hours in the streets to catch a glimpse of Mr Obama will be able to go home happy, our correspondent says.
After reviewing the inaugural parade as it marches past the White House, the couple were due to attend a series of balls.
Meanwhile, Senator Ted Kennedy, whose collapse during an inaugural lunch at Congress threatened to mar the celebrations, is said to be feeling well again after suffering "simple fatigue".
Barack Hussein Obama became America's newest president at a ceremony on the steps of the Capitol building where, his hand on a Bible, he repeated the traditional oath of office, promising to "preserve, protect and defend" the United States.
America is a friend of each nation and every man, woman and child... [and] we are ready to lead once more
In his speech, he acknowledged that he faced many serious challenges but pledged to begin the work of "rebuilding America".
He also spoke of his desire to usher in a new era of peace and of America's readiness to lead once more.
In one of the administration's first moves, White House Chief of Staff Rahm Emanuel asked all federal agencies and departments to stop any pending regulations pending a review.
The US Senate approved six members of the new cabinet on Tuesday.
Among those confirmed in their posts were Janet Napolitano as homeland security secretary and Steven Chu as energy secretary.
However, Hillary Clinton's approval as secretary of state was postponed after a republican senator demanded a debate beforehand about foreign donations to a foundation headed by her husband, former President Bill Clinton.
That debate is due on Wednesday and Mrs Clinton's nomination is now expected to be confirmed in a vote immediately afterwards.
Giant web event
The Associated Press estimates that about one million people attended the inauguration, based on a visual comparison with past events in the city.
Crowds at the inauguration of Barack Obama describe their experiences
Millions more Americans watched the inauguration online through live video streaming across their computers, the agency says.
It notes that essentially every major news outlet offered live feeds on what was potentially the most web-driven coverage of a significant news event yet.
Tens of millions more people watched the inauguration on television across the world and Obama fans in other countries had their own celebrations.
In Barack Obama's Kenyan ancestral village, Kogelo, thousands danced under a massive banner which simply read "Congratulations our son, our hope".
While many from the Obama family were in Washington to witness the swearing-in, their neighbours were watching it on massive TV screens, the BBC's Karen Allen reports.
"We expect that Obama is going to change the world and as Kenyans we are going to follow in Obama's footsteps and change the world," said one woman.
1. 1700GMT/1200EST Obama is inaugurated as US president on the West Front Lawn of the Capitol building 2. Obama escorts former President George W Bush and Vice President Dick Cheney on the presidential procession prior to their departure 3. 1920GMT/1420EST Parade starts along Pennsylvania Avenue 4. Obama will review troops from behind a bullet-proof screen in Lafayette Park, behind the White House 5. President Obama and the First Lady will attend a series of celebration balls, returning to the White House at 0725GMT/0225EST Wednesday
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