But he faces a tough battle in Congress over planned tax increases and spending cuts, after the Republicans held on to their majority in the House of Representatives.
Mr Obama's victory was greeted by warm congratulations from all sides of UK politics.
Prime Minister David Cameron described Mr Obama as "a very successful US President" and said he looked forward to working with him over the next four years, while Deputy PM Nick Clegg said the Government would continue its work with him in "building a more prosperous, a more free and a more stable world".
Labour's deputy leader Harriet Harman offered Mr Obama "our warmest congratulations", adding: "This morning he spoke of his determination to create more jobs, healthcare for all and tackling the scourge of inequality. We wish him well."
Mr Cameron, who was travelling in the Middle East as results came in, did not phone Mr Obama to offer his congratulations, but Downing Street said he intends to do so "soon".
In an emotional victory speech at the end of one of the most bitterly contested elections of recent times, Mr Obama promised ecstatic supporters in his home town of Chicago that "the best is yet to come".
"Tonight, despite all the hardship we have been through, despite all the frustrations of Washington, I have never been more hopeful about our future, I have never been more hopeful about America," he declared in a speech which recalled the soaring rhetoric of his 2008 election campaign.
"Tonight, in this election, you, the American people, reminded us that while our road has been hard, while our journey has been long, we have picked ourselves up, we have fought our way back, and we know in our hearts that for the United States of America, the best is yet to come."
After a contest which many pundits had said was too close to call, the President was returned with a surprising comfortable margin of victory with 303 votes in the electoral college compared to 206 for Mr Romney.
However the figures belied the deep divisions within the country, with the popular vote almost equally spilt between the two candidates.
With returns in from 94% of the nation's precincts, Mr Obama had 58 million votes – 50% of the popular vote. Mr Romney had 56 million, or 48%.
Of the nine swing states where the election battle was fiercest, Mr Obama won Ohio, Wisconsin, Virginia, Iowa, New Hampshire, Colorado and Nevada, while his Republican rival seized only North Carolina. The final battleground state, Florida, remained too close to call.
Meanwhile, the congressional elections saw the Republicans retain control of the House of Representatives while the Democrats held a narrow majority in the Senate – potentially foreshadowing a further period of legislative gridlock in Washington.
Mr Romney – the former businessman who claimed he could "fix" America's broken economy – told his supporters that he and running mate Paul Ryan had "given our all" for the campaign, but said it was now time for Republicans to work with the President.
He issued a plea for a level of co-operation between the two major parties which has been distinctly lacking over Mr Obama's first term.
"At a time like this, we can't risk partisan bickering," Mr Romney said. "Our leaders have to reach across the aisle to do the people's work."
Over the coming weeks, Mr Obama and Congress need to negotiate a new tax and spending plan to avoid the so-called "fiscal cliff" approaching at the end of 2012, when austerity measures legislated in the President's first term are due to come into effect.
However, despite Mr Romney's call for a bipartisan approach, there were signs Republicans in Congress are not ready to give up their goals of lower taxes and deep cuts in federal budgets.
The party's leader in the Senate, Mitch McConnell, said: "The voters have not endorsed the failures or excesses of the president's first term. Now it's time for the President to propose solutions that actually have a chance of passing the Republican-controlled House and deliver in a way that he did not in his first four years in office."