In a major blow to John McCain, a fellow Vietnam veteran whose campaign is based largely on his military and patriotic credentials, Mr Powell, a former four-star general who led US forces in the Gulf war, announced his decision on NBC’s "Meet the Press" programme.
Both Mr Obama, the Democratic nominee, and Mr McCain, his Republican opponent, have avidly courted Mr Powell. The former US Secretary of State, who has indicated he would like to return to public life, is a possible Pentagon chief or diplomatic envoy in an Obama administration.
Mr Powell, 71, said that the young Illinois senator had "met the standard" to lead his nation "because of his ability to inspire, because of the inclusive nature of his campaign, because he is reaching out all across America".
Should Mr Obama, 47, the son of a white mother from Kansas and a black father from Kenya, win on November 4th then "all Americans should be proud, not just African-Americans", Mr Powell, the son of Jamaican immigrants, said. "It would not just electrify our country, it would electrify the world."
He continued: "Obama displayed a steadiness. Showed intellectual vigour.
He has a definitive way of doing business that will do us well."
A former national security adviser to Ronald Reagan who also served President George H. W. Bush before becoming his son’s Secretary of State from 2001 to 2004, Mr Powell said that Mr Obama would be a "transformational president" and added: "For that reason I will be voting for Senator Barack Obama."
Mr Powell was the first black man to become chairman of the Joint Chiefs of Staff, the uniformed head of the US military. He publicly toyed with the idea of running for the White House in 1996, when early opinion polls indicated he would have had a strong chance of unseating Bill Clinton.
His wife Alma, frightened that he might be assassinated, is understood to have played a key role in dissuading him. Mr Powell a now notorious presentation to the United Nations in February 2003 advocating the invasion of Iraq and citing intelligence information that was subsequently discredited.
Mr Powell said he was disappointed by a "rightward shift" by Mr McCain and by his selection of Governor Sarah Palin of Alaska as his vice-presidential running mate, whom he said was not ready to be president.
He criticised Mr McCain, 72, a long-time friend to whose primary campaign he donated the maximum permissible $2,300 last year, for being inconsistent in his approach to the Wall Street meltdown. ""Almost every day he had a different approach to the problems we were having."
The former general also lambasted the Arizona senator for focusing on Bill Ayers, the former Weather Underground domestic terrorist with whom Mr Obama worked in Chicago. "Senator McCain says he’s a washed-up old terrorist.
Then why does he keep talking about him?" A disappointed Mr McCain sought to play down the potential impact of the endorsement. "It doesn’t come as a surprise," he told Fox News. "I’m very pleased to have the endorsement of four former Secretaries of State, well over 200 retired generals and admirals. I’ve admired and continue to respect Secretary Powell."