Apple claims the phone is the world's thinnest smartphone - a mere 7.6mm thick.
The phone has a larger four inch screen, and the aluminium handset is taller and thinner than previous models.
The new phone will be released on September 21, and available to pre-order from Friday. It will be the same price as the current iPhone 4S.
Apple confirmed it will also ditch the 30pin connector used to charge the phone or dock it. The new all-digital connector is called Lightning.
Users will have to buy a special adaptor to connect current accessories such as docks.
The iPhone 5 also has LTE technology for surfing the web at 4G speeds.
Apple confirmed it will work with the UK's first 4G network, due to be launched this year by EE.
The iPhone 5 camera remains eight megapixel in quality but Apple has made enhancements to the lens in order to improve the overall appearance of snaps, especially in low light conditions.
The camera also allows for panoramic photos to be created by sweeping the handset from left to right. The iPhone will also tell you if you're moving it too fast to capture the best image. The iPod touch is now just 6mm thin and weighs only 88 grams. It will also sport the same four inch Retina display as the iPhone 5. It will have the A5 processor found in the previous iPhone models.
Apple announced tonight it had now sold more than 400 million iOS devices around the world.
The new iOS 6 operating software will be available to download from September 19 for existing devices including the new iPad and the latest iPod touch.
The company’s YouTube application will also no longer be offered as a built-in app on Apple
The phone runs the new version of Apple’s operating system, iOS 6, which has built Facebook more closely into the operating system, so that users can upload photos directly from the camera app.
New tricks with Apple's voice-control software Siri include being able to post a Facebook status straight to your wall using your voice.
The launch is a key test for Apple’s smartphone, which is under increasing pressure from rivals such asGoogle’s Android operating system is now the world’s most popular, and Samsung is the world’s leading smartphone manufacturer.
In advance of the launch, Apple shares have risen 15% in the past six weeks, hitting an all-time high on Monday.Analysts J P Morgan believe that the handset will sell eight million units in the fourth quarter of the year - and offer a significant boost to the whole U.S economy.
J.P. Morgan's chief economist, Michael Feroli wrote in a note to clients that the launch could boost the whole U.S economy by up to half a percentage point.‘Calculated using the so-called retail control method, sales of iPhone 5 could boost annualized GDP growth by $3.2 billion, or $12.8 billion at an annual rate,' wrote Feroli.
Anticipation has been huge for the new handset, with one in 1000 of all web searches in the past week for ‘iPhone 5’, according to analysts Experian Hitwise.Analyst Ashok Kumar, an analyst at Rodman & Renshaw claimed last year that the new iPhone ‘was the last project that Steve Jobs was intimately involved with from concept to final design.’
The new handset is actually the sixth iPhone model (iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPhone 4S).
The cult smartphones have sold 250 million units since Apple introduced the product in 2007, according to analysts Strategy Analytics.