Further advances by the Islamic State (IS) group could threaten the city of Erbil, where there are US interests, Obama said.
"I have therefore authorized targeted airstrikes" at the request of the Iraqi government, Obama said.
The president stressed that no US ground troops would be involved in the operation.
"I will not allow the United States to be dragged into fighting another war in Iraq," he said.
The US military on Thursday had also begun an airdrop of humanitarian aid to provide help to thousands of people who have fled Islamic State militants, Obama said.
Referring to the plight of religious minority Yezidis who had fled from the advance of IS forces, Obama said the US had "unique capabilities to help avert a massacre."
"We have a mandate to help, in this a case request form the Iraqi government," Obama said. "We can act to prevent a potential act of genocide."
Hundreds of thousands of members of the Yezidi minority have fled their home region of Sinjal, near the Syrian border.
Thousands have reportedly been stranded on the barren heights of nearby Mount Sinjar since Sunday, without food, water and shelter, leading to a rising death toll. Others have reportedly headed for Kurdish-held territory elsewhere in Iraq and in neighbouring Syria.
Airstrikes are authorized if it is deemed necessary to break the IS siege at Mount Sinjar, senior administration officials told reporters after Obama's speech.
US manned and unmanned war planes will be circling around Erbil, where the US has a consulate and military advisors.
They are authorized to fire on Islamic State convoys if they approach Erbil, the officials said.
The "military is authorized to act as necessary" if there is a threat to a "critical infrastructure" such as the breach of a dam that could cause flooding and threaten the US embassy in Baghdad, the officials said.
Islamic State militants have taken control of several Christian towns in northern Iraq, prompting up to 100,000 people to flee for Kurdish-held territory.
The jihadists seized Qaraqoush, Iraq's biggest Christian town, and nearby villages, following the retreat of Kurdish troops who had come from the autonomous region of Kurdistan and protected the area for the past two months, residents said.
The militants earlier took full control of the mostly Christian town of Talkeef, north of the rebel-held city of Mosul, following the withdrawal of Kurdish Peshmerga soldiers.
"Most families are fleeing the town towards the province of Dahuk in Kurdistan," a resident said.
"Most of the displaced are now living in the open and face the threat of death because of scorching heat and lack of water and food," Chaldean Catholic Patriarch Louis Raphael Sako told reporters.
"It is a humanitarian disaster."
The Islamic State - an al-Qaeda splinter group - seized many of the Sunni Arab regions of northern and western Iraq in June. A Sunni group, it has fomented violence for the past year, aimed mainly at security forces and Shiite civilians.
After the capture of Mosul, the country's second-biggest city, the radical group ordered local Christians to convert to Islam, pay a protection tax or face death.
The Turkish government announced on Thursday that it was preparing aid packages for the refugees trapped on Mount Sinjar, which would be distributed to them by Iraqi government helicopters.
UN Secretary General Ban Ki-moon was "deeply appalled" by the attacks carried out on minorities by the Islamic State and called on the international community to help Iraq, a spokesman for Ban said.
Alexis Lamek, French deputy ambassador to the UN, said France urged the council to mobilize international response and was examining options the council could take.
French President Francois Hollande told the president of the Iraqi Kurdistan region, Massoud Barzani, in a telephone call that France was ready to give asylum to Christians who wanted to leave Iraq and who had "solid links" with France.
Hollande also said France was available "to provide support to forces engaged in the fight" against terrorism in Iraq. He did not give details on the type of support France could provide.