Its senior vice president of worldwide marketing Phil Schiller said the phone was "an absolute jewel".
Speaking at a launch event in California, he said the phone, which weighs 112 grammes and has a 4in screen, was "thinner, lighter and smaller".
The screen is half an inch larger than previous phones and Mr Schiller said it offered "much more room to work and play" and allowed for sharper images with less glare.
He said its new A6 chip doubled the speed of its graphics and allowed app developers to use "state of the art performance and graphics".
The US announcement was watched by journalists via a videolink in central London.
He added that the phone's "console quality graphics" did not affect the battery which had a longer life than the previous 4S model.
The phone's camera has a sapphire crystal lens cover to protect it and a panorama option which allows the user to take a panoramic picture.
Mr Schiller joked: "The world is just a more beautiful place when you use an iPhone 5."
The audience was told the phone's map function had been updated so it now used 3D maps and spoken word directions to thousands of destinations.
They were also shown a fly-over option which allows users to get an aerial view of streets around the world.
Scott Forstall, the senior vice president of iOS Software, introduced a series of updates including a shared photostream which allows people to share their pictures more easily.
The voice control software Siri has also been updated so people can ask it to recommend films and restaurants and update their Facebook accounts verbally.
The phone will be available in white and black. It will go on sale for 399 US dollars for the top 64GB version with less powerful versions selling for 299 US dollars and 199 US dollars.
It will go on sale in the UK at the same time as the US - September 21 - with UK prices to be confirmed later.