The anti-gay Texas senator triumphed over the controversial property tycoon in a shock result for the Republican party.
A subdued Donald Trump was forced to admit defeat to rival Ted Cruz following the Iowa caucus.
Polls placed the businessman five points ahead of his rival, however it was the Texas senator who came out on top.
Trump – who recently ditched his support for same sex marriage – appeared before his supporters to thank them for their work – and to claim he would win in New Hampshire next week, before making a swift exit from Iowa.
“I was told by everybody, ‘Do not go to Iowa. You could never finish even in the top 10’’,” Trump lamented at the hotel where a victory party had originally been planned.
He added: “I’m really honoured. And I want to congratulate Ted, and I want to congratulate all of the incredible candidates, including Mike Huckabee, who has become a really good friend of mine.”
With 99.9% of votes in, Cruz held a 27.7% to 24.3% lead over Trump – with Marco Rubio a close third at 23.1%.
During his victory speech Cruz – who is one of four candidates who signed a pledge to strip gay people of their basic rights if elected – told a cheering crowd: “God bless the great state of Iowa … To God be the glory.”
The anti-LGBT senator claimed his victory was a victory for the grassroots and “courageous conservatives” across the state and the country.
“Iowa has sent notice that the Republican nominee and the next president of the United States will not be chosen by the media, will not be chosen by the Washington establishment, will not be chosen by the lobbyists, but will be chosen by the most incredible powerful force where all sovereignty resides in our nation: by we the people, the American people.”
In more uplifting news for those hoping for a President who won’t be a blatant homophobe, Mike Huckabee conceded defeat after failing to secure any support following the vote, with fellow anti-gay candidates Ben Carson and Rick Santorum expected to announce the end of their campaigns imminently.
The Democrats, meanwhile, are no closer to finding their victor, after pro-gay candidates Hillary Clinton and Bernie Sanders effectively tied.
The next vote will take place in New Hampshire on February 9.