The launch of the Omid (Hope) satellite had been expected and was clearly timed to coincide with the 30th anniversary of the Iranian revolution, says the BBC's Jon Leyne in Tehran.
Mr Ahmadinejad said the satellite was launched to spread "monotheism, peace and justice" in the world.
But the launch could cause alarm in the West because of fears the technology could be used to make a long-range missile, possibly with a nuclear warhead, our correspondent says.
Iran will no doubt reply that it is once again being judged by double standards for using a technology that is commonplace in many other parts of the world, he adds.
Speaking after the launch, Iranian Foreign Minister Manouchehr Mottaki stressed the project was peaceful.
"Iran's satellite technology is for purely peaceful purposes and to meet the needs of the country," Mr Mottaki said, on the fringes of an African Union summit in Ethiopia.
We can't help but link this to the very serious concerns about the development of military nuclear capability
Eric Chevallier French foreign ministry spokesman
US state department official Robert Wood said Iran's activities could "possibly lead to the development of ballistic missiles" and were of "great concern".
French foreign ministry spokesman Eric Chevallier said France was "very concerned" about the launch.
"We can't help but link this to the very serious concerns about the development of military nuclear capability," he said.
UK Foreign Office minister Bill Rammell said the launch underlined the UK's "serious concerns about Iran's intentions".
"There are dual applications for satellite launching technology in Iran's ballistic missile programme," he said in a statement.
"As a result, we think this sends the wrong signal to the international community, which has already passed five successive UN Security Council resolutions on Iran's nuclear and ballistic missile programme."
John Pike, an expert at the US-based think-tank GlobalSecurity.org, confirmed to the BBC that the launch had been a success and the satellite was now established in a low Earth orbit.
At that altitude it is likely to remain in orbit for some two months before falling back towards Earth and burning up as it re-enters the atmosphere, he told the BBC.
Last August, Iran said it had successfully launched a rocket capable of carrying its first domestically built satellite, having in February launched a low-orbit research rocket as part of preparations for the satellite launch.
That launch marked the inauguration of a new space centre, at an unidentified desert location, which included an underground control station and satellite launch pad.
The White House called the 2008 launch "unfortunate", warning it would further isolate Iran from the global community.
In February 2007, Iran said it had launched a rocket capable of reaching space - before it made a parachute-assisted descent to Earth.
In October 2005, a Russian rocket launched Iran's first satellite, the Sina-1, which carried photographic and telecommunications equipment.
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