Former Secretary of State Hillary Clinton was in a virtual tie with rival Bernie Sanders, a self-described democratic socialist US senator from Vermont.
With 93% of the precincts reporting Clinton led with 50.1% to Sanders' 49.3%.
Former Maryland Governor Martin O'Malley, who had trouble gaining any traction in the Democratic race, planned to suspend his campaign. He was in third place with 0.5%.
Noting his current tie with Hillary Clinton, Sanders said: "Nine months ago, we came to this beautiful state."
Iowa has held the first nominating contests, called caucuses, since the early 1970s, giving it extra weight in the US electoral process that can translate into momentum for winning candidates. The caucuses are voter gatherings that take place in 1,100 schools, churches and other public locations across the Midwestern state.
The 2016 election is shaping up to be the year of angry voters as disgruntled Americans worry about issues such as immigration, terrorism, income inequality and healthcare, fueling the campaigns of Trump, Sanders and Cruz.
Market reaction in Asia to the results was muted, with US stock futures down around half a percent.
“Financial markets might be more comfortable with Hillary (Clinton) than Bernie (Sanders)," said Sean Callow, a strategist at Westpac Bank in Australia.
"There would have to be at least some jitters over the guy who plans to break up the big banks. But it's probably too early to expect the U.S. presidential race to have an impact on the US stock market."
"It looks like we'll have about half of the Iowa delegates."
He congratulated Ms Clinton and thanked Martin O'Malley.
"The people of Iowa have sent a profound message... to the political establishment, to the media establishment. It's too late for establishment politics and establishment economics," he said.
He said his average campaign contribution was $27, proudly.
While addressing her supporters, Hillary Clinton said: “There is so much at stake in this election."
"I am a progressive who gets things done. I am honored to stand in the long line of American reformers," she added.
She spoke about increasing high-paying jobs, combating climate change, lowering student debt, protecting human rights, and passing gun control and universal healthcare to loud cheers from the crowd.
She is "breathing a big sigh of relief", she said, and looking forward to a lively debate with Mr Sanders.
