The judgement comes after months of stormy proceedings to establish Hussein's guilt in ordering the executions of 148 men and boys from the village of Al-Dujayl in 1982 following a failed assassination attempt against him.
The court read out the death sentence for Hussein today as Baghdad and much of central Iraq was under tight security to prevent revenge attacks.
The judge sentenced Hussein and two of his aides to death by hanging for their roles in the killing of 148 Shi'ite villagers after a failed assassination bid on Hussein in 1982.
As Judge Ra'uf Abd al-Rahman read out the verdict, Hussein interrupted him with shouts of "Allahu Akbar!" (God is Great) and "Long live the nation."
Iraqi Prime Minister Nuri al-Maliki said the verdict was a victory for Hussein's victims.
One of Hussein’s two aides who will be executed is Barzan Ibrahim al-Tikriti. He is Hussein's half-brother and former head of Hussein’s Mukhabarat intelligence service.
The other aide who will be executed is the Ba'athist regime’s former chief judge Awad Hamid al-Bandar.
Former Vice President Taha Yasin Ramadan was given life in prison for his part in ordering the killings of the villagers.
Three other former Ba'ath Party officials were sentenced to 15 years in prison for their roles. And one former official was freed for lack of evidence.
Hussein's verdict was the last in the series of judgements to be read out today, maintaining suspense to the end over how the former leader would be punished.
Throughout the trial Hussein and his lawyers argued that the former leader did not order the killings as part of retaliatory measures against the village of Al-Dujayl.
Iraqis in a predominately Shi'ite Baghdad suburb celebrate the verdict (AFP)
It remains unclear when Hussein’s death sentence will be carried out. The sentencing requires his speedy execution but Hussein has the right to appeal.
At the same time, Hussein remains on trial over a second set of charges of war crimes and crimes against humanity. That is over the killings of thousands of Iraqi Kurd civilians in northern Iraq.
The charged mass killings took place in a series of eight military campaigns -- dubbed "Anfal" -- over a six-month period in 1988.
Tight Security In Baghdad
Security in Baghdad and central Iraq was tight for today's sentencing, with all military leaves cancelled.
Hussein's regime had its base of support in Iraq’s minority Sunni Arab population, which is concentrated in central Iraq. Loyalists of his regime make up one element of the insurgency, which also includes Islamic militants and self-declared nationalists.
Hussein maintains he is the victim of "occupation justice" under the U.S.-backed Baghdad government. He has repeatedly said that he expected to be sentenced to death but that he preferred to face a military firing squad rather than the hangman's noose.
While security concerns center on central Iraq in the wake of today’s sentencing, celebrations are breaking out in Kurdish areas of northern Iraq and Shi'ite-majority areas of southern Iraq -- the regions where Hussein's rule was most repressive.
Today's sentencing comes just days before the United States holds congressional elections in which the success or failure of Washington's Iraq policies has been hotly debated by candidates.
U.S. officials have dismissed any suggestions by Hussein's lawyers that the verdict was timed with the elections in mind.
The United States and Britain -- among others -- have welcomed today's verdicts.
U.S. President George W. Bush called the ruling a "milestone" for Iraq. "Iraq has a lot of work ahead as it builds a society that delivers equal justice and protects all its citizens," he said. "Yet history will record today's judgement as an important achievement on the path to a free, just and unified society."
British Foreign Secretary Margaret Beckett, in a statement, also welcomed the verdicts.
Iranian Foreign Ministry spokesman Mohammad Ali Husseini, speaking before the verdicts were pronounced, said execution was the "very least" punishment Hussein should get.
But international human rights organizations are criticizing the trial and verdict.
An official with the London-based Amnesty International human rights watchdog said the trial was a "shabby affair." Malcolm Smart, Amnesty director for the Middle East and North Africa, said it had been "marred by serious flaws."
Human Rights Watch said the trial was a "lost opportunity" and that the proceedings were neither fair nor impartial and thus did not serve the cause of justice.
For a timeline of former Iraqi President Saddam Hussein's life from his rise within the ranks of the Ba'ath Party and the Revolution Command Council to his regime's ruthless persecution of perceived enemies at home and abroad, click here.