Nearly five million people living illegally in the US can escape deportation under sweeping changes to the immigration system.
Undocumented immigrants and supporters watch Obama speak on immigration in Philadelphia
"Come out of the shadows and get right with the law," urged President Barack Obama in a televised address.
Republicans say the action, without Congress, is beyond his authority and relations will now be poisoned.
There are about 11m illegal immigrants in the US and this year children coming across the border prompted a crisis.
Under the plan, undocumented parents of children who are US citizens or legal residents will be able to apply for work permits lasting three years.
Only parents who have lived in the US for five years will qualify - about 3.7m people are estimated to fit this criteria.
The president told the nation that what he is proposing is not amnesty.
"What I'm describing is accountability - a commonsense, middle ground approach," he said.
Although the plan will allow millions to work, it won't offer a path to citizenship or entitle them to the same benefits as Americans, he said.
"If you're a criminal, you'll be deported. If you plan to enter the US illegally, your chances of getting caught and sent back just went up."
The plan will also expand a 2012 programme that defers deportation for young people brought to the country illegally as children.
Also in the speech:
• shifting additional resources to the Mexico border to increase arrests of illegal crossers
• streamlining the immigration court process to ease the backlog
• making national security threats and serious criminals the highest priorities for deportation
• a plea to Republicans to pass a broader immigration bill that is a "comprehensive fix"
The plan reflects "the guidance [Mr Obama] has received from the Secretary of Homeland Security and the Attorney General about everything he could do under the existing law", a senior administration official said on Thursday.
"It's entirely consistent with the way previous presidents have exercised their executive authority."
Republicans reacted with fury and said such a move would "poison the well" on a number of other issues.
Arizona Republican Senator John McCain called it an "illegal power-grab" that "fails to address the root causes of the dysfunction in our immigration system".
And Texas Governor Rick Perry, who leads a border state, argued the move would "lead to more illegal immigration, not less".
Some Hispanic campaigners called on the president to do more.
"President Obama's important move forward on immigration reform is legally and morally right but deficient in its scope," said Maria Teresa Kumar, president of Voto Latino.
Mr Obama's plan does not go as far as a Senate bill that would have provided a path to citizenship for millions of undocumented immigrants but it was never passed by the Republican-controlled House of Representatives.
The US president has said he would sign a compromise bill on immigration from Congress if it passed.
On Thursday, Mr Obama said those who questioned his authority "to make our immigration system work better, or question the wisdom of me acting where Congress has failed, I have one answer - Pass a bill".
BBC
