"You took on a role you didn’t ask for and made it your own with grace and grit and style and good humour. You made the White House a place that belongs to everybody. And a new generation sets its sights higher because it has you as a role model. You’ve made me proud. You’ve made the country proud."
In a poignant moment, Obama also made a point of thanking his two daughters.
"Malia and Sasha, under the strangest of circumstances, you have become two amazing young women, smart and beautiful, but more importantly, kind and thoughtful and full of passion," he said.
"You wore the burden of years in the spotlight so easily. Of all that I’ve done in my life, I’m most proud to be your dad."
In an 8pm speech at McCormick Place, the city's main convention center, Obama talked about how his experience in Chicago - at the start of his political career - taught him that change happens from the grassroots.
"I first came to Chicago when I was in my early twenties, still trying to figure out who I was; still searching for a purpose to my life," Obama said.
"It was in neighborhoods not far from here where I began working with church groups in the shadows of closed steel mills.
"It was on these streets where I witnessed the power of faith,and the quiet dignity of working people in the face of struggle and loss."
First lady Michelle Obama, Vice President Joe Biden, his wife, Jill Biden, and many current and former White House staff members and campaign workers attended the speech.
Obama's daughter Malia, 18, was present but his 15-year-old Sasha was not.
Obama also reflected on his administration's achievements in his address, encouraging supporters to keep fighting for issues like the environment, gay rights and economic equality.
He plans to remain in Washington for the next two years while his younger daughter, Sasha, finishes high school.
He has indicated he wants to give Trump the same space that his predecessor, Republican President George W. Bush, gave Obama after leaving office by not maintaining a high public profile.
The Democratic president was feeling some nostalgia as he prepares to leave the White House on January 20 after eight years in office.