Fast-rising Sen. John Edwards finished a strong second, while former Vermont Gov. Howard Dean wound up well back in third place, a severe setback for the presumed national front-runner.
"This didn't come out the way we wanted," a downbeat Gephardt told supporters, effectively ending his second presidential try. "Life will go on, because this campaign was never about me. It was about all of us."
The opening round of the 2004 presidential race turned the Democratic contest upside down and threw it wide open heading into next week's primary in New Hampshire, where Dean holds a dwindling lead in the polls.
"Thank you, Iowa, for making me the comeback Kerry!" said the winner, borrowing the "comeback kid" monicker that Bill Clinton used after managing to stave off defeat in the 1992 New Hampshire primary.
"Not so long ago, this campaign was written off. But ... you stood with me so that together we can take on George Bush and the special interests, and literally give back America its future and its soul," Kerry, 60, declared to jubilant supporters in Des Moines.
Kerry, whose White House ambitions appeared to be on life support only a few months ago, roared from behind in Iowa over the past three weeks. His campaign here ended with less than a whisper, though, after the candidate lost his voice during a grueling final campaign push and canceled several campaign events yesterday.
Edwards, the runner-up, told backers at his Iowa headquarters: "Tonight we started a movement to change this country that will sweep across America. This campaign, this cause, this movement ... is about lifting up the American people and making them believe again."
With 98 percent of the precincts reporting, Kerry led with 37.6 percent of the vote, followed by Edwards at 31.9 percent, Dean with 18 percent, Gephardt at 10.5 percent and Rep. Dennis Kucinich with 1.3 percent.
Kerry and Edwards had already been gaining in New Hampshire, even before the caucuses took place, as word of their Iowa surge spread over the past week. Along with Dean, they will now confront retired Gen. Wesley K. Clark and Sen. Joseph I. Lieberman of Connecticut, who skipped Iowa and concentrated instead on the Granite State.
In Iowa, it was a collapse in Dean's support as voters took a second look at the Vermonter in the final weeks of the campaign that made it possible for Kerry and Edwards to prevail.
Kerry, once the favorite in New Hampshire, may again be the man to beat there, after his big Iowa victory. But Clark, who has been laying the groundwork for his candidacy there, could also be formidable.
Edwards, who succeeded in putting a smiling face on Dean's angry, anti-Bush message, may also receive a huge lift heading into next week's primary.
"I really think Edwards is going to get the big bounce in New Hampshire," former Sen. Bob Dole, a Republican with first-hand experience in the ways of the first two presidential states, predicted last night on CNN.
Dean will face a severe challenge to reverse his downward momentum in New Hampshire in less than a week and demonstrate that he has learned from his Iowa setback.
The former Vermont governor, a victim of his own missteps, was defiant in the face of his poor showing here, which he blamed on the sustained attacks by his opponents.
"You know something? If you had told us one year ago that we were going to come in third in Iowa, we would have given anything for that," Dean told cheering backers here.
Then, shouting red-faced at the top of his lungs, Dean waved his fist and vowed that his campaign would continue through all the primary states.
"And then we'll go to Washington, D.C., and take back the White House. We will not give up! We will not give up! ... We have just begun to fight!"
In a television interview, Dean said that the fact that he had grabbed a big early lead in Iowa months ago worked against him in the end.
"That was the problem. We were way ahead. And when you're way ahead, people decide you're the target. And we were pretty much the target of everybody for a long time," he said on CNN.
Kerry's victory capped a late surge that began when Iowans soured on Dean and started searching for an alternative.
Kerry spent at least 73 campaign days in Iowa, more than any other candidate except Dean. He ran on his 20 years of experience in Washington, contending that he was the Democrat best able to unseat President Bush, a pivotal concern for many Iowa voters.
Kerry also benefited from the conclusion of many Iowa voters that Edwards, a newcomer to politics, was too inexperienced and that Gephardt's time had passed.
The turnaround was aided by several strategic decisions. Kerry's campaign was free to spend heavily in Iowa after he opted out of the federal system of campaign subsidies that imposes state-by-state spending limits.
Kerry's decision was driven in large part by the fact that his fund-raising had dried up, forcing him to loan his campaign more than $6 million. Aides predicted that his fund-raising would begin to pick up now as a result of his Iowa victory.
A decorated Vietnam veteran, Kerry was aided by the state's large veteran community. He also got the endorsement of Christie Vilsack, wife of popular Democratic Gov. Tom Vilsack, who remained neutral.
Last night, the governor, smiling broadly and calling himself "Christie Vilsack's husband," said the election proved that "Democrats were interested in who's electable."
The results gave a black eye to organized labor, which invested heavily in Dean and Gephardt, who together were winning less than one-third of the vote.
Dean, whose record-setting fund-raising ability could allow him to maintain his candidacy for many weeks to come, faces new questions about his appeal. He spent nearly two years campaigning in Iowa, and his failure to finish strongly is already prompting questions about whether he will wear well with voters in other states.
Tad Devine, a Kerry strategist, said that Dean's downfall was largely self-inflicted.
"Suddenly, people started finding out things about him they didn't like," he said, noting Dean's gaffes, his poor performance in the final Iowa debate and 4-year-old quotes in which he denigrated the caucus process.
Dean's campaign tried to put the best possible face on the their candidate's failure, for the first time, to defy expectations.
"For some people, [Iowa may be the end of the line. For us, it's the beginning of a marathon that we trained to run and we're going to win," said Steve McMahon, a Dean strategist.
A Kerry campaign adviser acknowledged that Dean still has considerable advantages, including a larger organization than any other candidate in New Hampshire and other states that will hold primaries in coming weeks. But the adviser, who spoke on condition that he not be identified, said recent polls that showed Dean leading in other states would soon be out of date.
"What's happening here and what's happening in New Hampshire scrambles the race," said the Kerry adviser. Polling in states that vote after Iowa and New Hampshire won't "mean anything until Iowa and New Hampshire are done."
No candidate had more on the line than Gephardt. The veteran congressman from Missouri won here in 1988, the first time he ran for president. His Iowa defeat ended his candidacy, which had drawn the support of 21 labor unions that now will have to look elsewhere for a candidate.
Hours before the caucuses began, officials of the Edwards and Kucinich campaigns announced a deal asking their supporters to join forces at caucuses in which one or both candidates lacked the numbers needed to win delegates on their own. Such arrangements are rarely effective, however, and it wasn't immediately clear what impact, if any, they had on the results.
In Precinct 311, an upscale neighborhood in the Des Moines suburbs, the results reflected the statewide decision. Kerry had 76 Democrats caucusing for him, with 61 for Edwards and 27 for Dean.
Deb Vranesh, a West Des Moines pharmacist, who initially joined a group of uncommitted voters, wound up switching to Kerry.
"I want to go with a candidate who can beat Bush," she said. "But I also liked Edwards, because of the freshness and he's new, a little different from the rest. He hasn't been negative like the others."
This year's Iowa campaign generated an unusually high degree of excitement, because of predictions that the contest would be the closest ever. But in the end, it wasn't. The 1988 edition, in which 9 percentage points separated the top three finishers, was.
Turnout for the caucuses was expected to top 100,000, according to the state's top election official. The previous record for a Democratic caucus, 126,000, was set in 1988, when seven candidates were running for the nomination.
Weather was not a major factor. Temperatures were in the mid-teens as voters gathered at 1,993 sites for the caucuses, public meetings that generally last from one to three hours.
Republicans also held caucuses last night. Bush is running unopposed for his party's nomination.
Only 45 of the more than 2,100 national Democratic convention delegates needed to win the right to oppose Bush this fall were at stake in the caucuses. But Iowa has exercised outsized influence in presidential campaigns for decades, as a result of its place at the head of the primary calendar.
Jimmy Carter's surprise victory in 1976 put the obscure ex-governor of Georgia on his way to the White House. No candidate has ever finished lower than third in a contested Iowa campaign and still won the nomination.
Iowans don't always pick the eventual nominee. But they usually shape the race, boosting winners and hurting candidates whose performance falls short of expectations.
The Iowa "bounce" counts most in New Hampshire, which holds its primary a week from today. In 1984, Colorado Sen. Gary Hart rode an unexpected second-place caucus finish -- more than 30 points behind former Vice President Walter F. Mondale -- to an upset victory in New Hampshire.