"By nearly every measure, America is a better, stronger place than when we started", he said. For every two steps forward, it often feels we take one step back.
He implored Americans of all backgrounds to consider things from each other's point of view, saying "we have to pay attention and listen".
His successor, Donald Trump, has vowed to undo some of Mr Obama's signature policies.
Obama mostly held it together despite the gravity of the moment, but it's safe to say he made a whole lot of viewers ugly-cry into their couch cushions.
"Chicago was a natural place for him, not just because it's hometown, but because it's where he got his political start, and it's where he really first learned the lesson", Psaki said. United States presidents are limited to two terms by the constitution.
"Rivals like Russian Federation or China can not match our influence around the world - unless we give up what we stand for, and turn ourselves into just another big country that bullies smaller neighbors", Obama said Tuesday evening.
"There's a second threat to our democracy".
"My fellow Americans, it has been the honor of my life to serve you", President Obama said to a packed and enthusiastic convention center. "Not in my ability to bring about change - but in yours".
He seemed to take subtle veiled shots at President-elect Trump, for instance in the warning, "If we don't create opportunity for all people, the disaffection and division... will only sharpen in years to come". He said to his daughters, "Of all I've done in my life, I am most proud to be your dad: Obama to daughters Malia and Sasha".
Obama wiped away tears as he closed his speech by praising his wife, first lady Michelle Obama, Vice President Joe Biden and his wife Dr. Jill Biden.
"Yes we can. Yes we did".
The president traveled to the Windy City on Tuesday, believing it is the most fitting place to speak to the American people one more time. But he said those are not enough and that economic inequality hurts the country's democratic principles. "And no one who threatens America will ever be safe", he said. "Our founders quarreled and compromised, and expected us to do the same".
The outgoing First Lady put her arm around her 18-year-old daughter Malia as her husband delivered his speech.
"If you're exhausted of arguing with strangers on the Internet, try talking with one of them in real life, " he said. "His intention is to motivate people to try to get involved and work for their democracy".
"My fellow Americans, Michelle and I have been so touched by all the well-wishes that we've received over the past few weeks", the president began.
When President Barack delivered his moving farewell address January 10 from Chicago, his youngest daughter Sasha was noticeably missing from the audience.