Senator Specter, who's been in the Senate for 29 years, would face a difficult reelection contest next year as a Republican in Pennsylvania, a state that backed Barack Obama over Republican John McCain in last year's presidential race.
Public opinion polls showed Specter would fare better as a Democrat.
At a news conference Tuesday, Specter said the decision to leave the Republican party was not an easy one. "This is a painful decision. I know I am disappointing many of my friends and colleagues," he said.
But Specter said he found himself increasingly at odds with a Republican Party that has moved to the right.
His decision gives Democrats a 59-seat majority, one short of the 60 necessary to overcome Republican attempts to block legislation.
One Senate vacancy remains from the state of Minnesota, where an election recount continues. Democrat Al Franken leads Republican incumbent Norm Coleman, and if he is declared the winner, would become the party's 60th vote.
Specter's announcement was welcomed by White House spokesman Robert Gibbs, who said Specter's support would be important in implementing President Obama's economic plan:
"Let me repeat what the president told Senator Specter this morning, that he has the president's full support, that he is thrilled that he switched parties and is a Democrat and that we look forward to working as we have on the Recovery and Reinvestment Plan with Senator Specter," he said.
But while Specter supports Obama's economic initiatives, he made clear he would not be a rubber stamp for Democrats. "I will not be changing my own personal independence or my own approach to individual issues," he said.
Specter has shown his independence as a Republican, most recently by becoming one of only three members of his party to vote for President Obama's economic stimulus package.
Senate Majority Leader Harry Reid, a Nevada Democrat, acknowledged Specter's independent streak, and said there would continue to be a need for cooperation from Republicans in accomplishing the nation's business.
"Democrats and Republicans must still work together to make health care more affordable, invest in renewable energy and help all people in America to get an education. Democrats and Republicans must still work together to ensure our troops have the resources they need to more effectively fight extremists in the Middle East and around the world," he said.
Reid told reporters he had been making overtures to Specter to join the Democratic Party for some time, even before the senator from Pennsylvania faced a difficult reelection contest.
Senate Republican leader Mitch McConnell of Kentucky expressed his disappointment with Specter's decision, saying it could undermine Republicans' ability to put a check on the Democratic majority.
"I think the threat to the country presented by this defection really relates to the issue of whether or not in the United States of America, our people want the majority to have whatever it wants without restraint, without a check or a balance," he said.
Specter's announcement is the latest setback for Republicans, who lost control of the Senate and House of Representatives in 2006 and lost the White House and more seats in Congress last year.
The 79-year-old Specter was one of the most senior Republicans in the Senate and held influential positions on Judiciary and Appropriations committees. It is not clear if Democrats will assign him committee leadership positions.
Specter has fought Hodgkin's disease, a cancer of the lymphatic system, but says his health is restored and he feels fine.