The Norwegian Nobel Committee praised Obama for "his extraordinary efforts to strengthen international diplomacy and cooperation between peoples".
The first African-American to hold his country’s highest office, Obama has called for disarmament and worked to restart the stalled Middle East peace process since taking office in January.
"Very rarely has a person to the same extent as Obama captured the world’s attention and given its people hope for a better future," the committee said in a citation.
It awarded the prize to Obama less than nine months into his presidency. Despite setting out an ambitious international agenda, he has yet to score any breakthrough on the Middle East or Iran’s nuclear programme, and faces difficult choices on the conduct of the war in Afghanistan.
Last month Obama chaired a historic meeting of the United Nations Security Council, which unanimously approved a U.S.-drafted resolution calling on nuclear weapons states to scrap their arsenals.
Obama is the third senior U.S. Democrat to win the prize this decade after former Vice President Al Gore won in 2007 along with the U.N. climate panel and Jimmy Carter in 2002.
The prize worth 10 million Swedish crowns will be handed over in Oslo on December 10.