Former Secretary of State Hillary Clinton and US Senator Bernie Sanders of Vermont came in deadlocked, both receiving roughly 50 percent in a race that was too close to call. Sanders, a self-described democratic socialist, declared the result a "virtual tie."
Unusually large crowds poured into schools, churches and other venues for the so-called caucuses, in which voters gather together to select a candidate.
The results of the Democratic race put pressure on Clinton to siphon support away from Sanders, who has won over politically left-leaning voters with his promises to take on Wall Street and start fresh with healthcare reform.
Clinton, 68, said she was breathing a "big sigh of relief" after the results. She lost Iowa to then-Senator Barack Obama in the 2008 Democratic race and never recovered.
The former first lady congratulated Sanders and did not declare victory in her remarks. Her spokesman Brian Fallon, however, said numbers showed she would emerge with two more delegates from Iowa than Sanders, a victory. Delegates determine the party's nominee at a convention in July.
"It is rare that we have the opportunity we do now to have a real contest of ideas," Clinton said with her husband, former President Bill Clinton, and daughter Chelsea joining her on stage.
Sanders, 74, declared himself overwhelmed. The lawmaker, who smiled broadly as he addressed supporters, is leading in New Hampshire, home to next week's second contest, but trails Clinton in other states such as South Carolina, which holds the third contest.
"Nine months ago, we came to this beautiful state, we had no political organization, we had no money, we had no name recognition, and we were taking on the most powerful political organization in the United States of America," Sanders said.
Former Maryland Governor Martin O'Malley, who had trouble gaining any traction in the Democratic race, suspended his campaign after coming in third in Iowa with 0.6 percent.
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.