In 1996, Obama was elected to the Illinois State Senate from Chicago's 13th District in the south-side neighborhood of Hyde Park. In January 2003, when Democrats regained control of the chamber, he was named chairman of the Senate Health and Human Services Committee. Among his legislative initiatives, Obama helped to author an Illinois Earned Income Tax Credit that provided benefits to lower-income families, worked for legislation that would support residents who could not afford health insurance, and helped pass bills to increase funding for AIDS prevention and care programs.

In 2000, Obama made an unsuccessful Democratic primary run for the U.S. House of Representatives seat held by four-term incumbent candidate Bobby Rush. Rush, a former Black Panther and community activist, charged that Obama had not "been around the first congressional district long enough to really see what's going on." Rush received 61% of the vote to Obama's 30%. After the loss, Obama focused his efforts on the state Senate, authoring a law requiring police to videotape interrogations for crimes punishable by the death penalty. He ran unopposed in 2002.

Reviewing Obama's career in the Illinois Senate, a February 2007 article in the Washington Post noted his ability to work effectively with both Democrats and Republicans, and to build bipartisan coalitions. In his subsequent campaign for the U.S. Senate, Obama won the endorsement of the Illinois Fraternal Order of Police, whose officials cited his "longtime support of gun control measures and his willingness to negotiate compromises," despite his support for some bills that the police union had opposed.

Midway through his U.S. Senate campaign, Obama wrote and delivered the keynote address at the 2004 Democratic National Convention in Boston, Massachusetts.[28]

After describing his maternal grandfather's experiences as a World War II veteran and a beneficiary of the New Deal's FHA and GI Bill programs, Obama said:

No, people don't expect government to solve all their problems. But they sense, deep in their bones, that with just a slight change in priorities, we can make sure that every child in America has a decent shot at life, and that the doors of opportunity remain open to all. They know we can do better. And they want that choice.

Questioning the Bush administration's handling of the Iraq War, Obama spoke of an enlisted Marine, Corporal Seamus Ahern from East Moline, Illinois, asking, "Are we serving Seamus as well as he is serving us?" He continued:

When we send our young men and women into harm's way, we have a solemn obligation not to fudge the numbers or shade the truth about why they're going, to care for their families while they're gone, to tend to the soldiers upon their return, and to never, ever go to war without enough troops to win the war, secure the peace, and earn the respect of the world.

Finally he spoke for national unity:

The pundits like to slice-and-dice our country into Red States and Blue States; Red States for Republicans, Blue States for Democrats. But I've got news for them too. We worship an awesome God in the Blue States, and we don't like federal agents poking around in our libraries in the Red States. We coach Little League in the Blue States and yes, we got some gay friends in the Red States. There are patriots who opposed the war in Iraq and patriots who supported the war in Iraq. We are one people, all of us pledging allegiance to the stars and stripes, all of us defending the United States of America.

The speech was Obama's introduction to most of America. Its enthusiastic reception at the convention and widespread coverage by national media gave him instant celebrity status.