While he said the influx of immigrants through the centuries "enriches us all," Obama called the U.S. immigration system "broken," with an estimated 11 million undocumented immigrants in the country. He said the situation has led to "a massive underground economy that exploits a cheap source of labor while depressing wages for everyone else."
Immigration reform will help middle-income families and make America more competitive in the global economy, he said.
Obama said his administration has spent the past two years working to secure the nation's borders, with 20,000 Border Patrol agents now in place -- more than double the number in 2004 -- and a fence separating the United States from Mexico "basically complete."
He said the effort has been augmented by intelligence gathering and analysis, the use of drones and partnering with Mexico. More drugs, cash and weapons have been seized than ever before, and fewer people are crossing the border illegally, he said.
"So, we have gone above and beyond what was requested by the very Republicans who said they supported broader reform as long as we got serious about enforcement," Obama said.
There are those, however, who will want even more border agents and security measures.
"Maybe they'll say we need a moat. Or alligators in the moat," he said. "They'll never be satisfied. And I understand that. That's politics. But the truth is, the measures we've put in place are getting results."
But, he said, the "ultimate solution" is to pass reform measures so "fewer people have incentive to enter illegally in search of work in the first place."
He called on Congress to "put politics aside" and "finish the work we've started."
Obama laid out several reform steps he said are needed, starting with securing the borders and enforcing current laws. He said businesses need to be held accountable if they exploit undocumented workers. He also said illegal immigrants "have to admit that they broke the law, pay their taxes, pay a fine and learn English," as well as "undergo background checks and a lengthy process before they can get in line for legalization."
The president said the country's "outdated system of legal immigration" needs reform so "it easier for the best and the brightest to not only study here, but also to start businesses and create jobs here."
"We need to provide farms a legal way to hire the workers they rely on, and a path for those workers to earn legal status," he said.
"And we should stop punishing innocent young people for the actions of their parents -- by denying them the chance to earn an education or serve in the military. That's why we need to pass the Dream Act."
Assistant Senate Majority Leader Dick Durbin, D-Ill., Senate Majority Leader Harry Reid, D-Nev., Sen. Robert Menendez, D-N.J., and other senators are to announce Wednesday they will bring up the Dream Act bill.
The National Retail Federation's chain restaurants branch reacted positively to Obama's speech and called for comprehensive reform "to address glaring deficiencies in our country's ability to provide a steady, stable supply of workers to keep our economy growing."
"Reforms must address both short-term and longer-term workforce needs," National Council of Chain Restaurants Executive Director Rob Green said in a release. "But reform should be truly comprehensive and deal with all the issues of this complex subject rather than making employers scapegoats for the shortcomings of our immigration system. Any mandatory system of employer verification of workers must be phased in over time, include a safe harbor for companies that use the system in good faith and avoid disruptions to the normal course of business activity."
Obama called on people to take part in the national debate by logging on at www.whitehouse.gov.
"We need Washington to know that there is a movement for reform gathering strength from coast to coast. That's how we'll get this done," he said.
2014: The Year in Music [PHOTOS]