The mission is the start of a programme to land a space rover on the moon in 2012 and astronauts by 2020. Japan already sent a satellite successfully into the moon's orbit last month and is also planning a manned expedition by 2020.
"Japan began its lunar exploration research much earlier than we did, so we have always stressed that with the launch of Chang'e, we don't want to be talking about who is first," said Zhang Jianqi, an official with the mission.
India and the US are also planning missions next year in a new global surge of interest in lunar exploration.
The moon is potentially a source of the isotope helium-3, which scientists believe could provide fuel for the entire planet's energy needs, although no fusion reactor yet exists to use it.
An almost-full moon lit up the sky in Beijing at 6pm yesterday, adding to the excitement of the launch in a country whose mythology is tightly attached to the moon and which sees space exploration as one of the symbolic gaps between it and the West.
"In the current international situation, if China does not do this it will be difficult to escape the fate of being left behind and beaten yet again," said Ouyang Ziyuan, the chief scientist for the Chinese lunar programme.
But at the launch site in Xichang in Sichuan province - which uses Beijing time despite being nearly 1,000 miles west of the capital - it was still broad daylight as farmers watched in awe as the rocket blasted off. They and their livestock had been temporarily moved from their land in case of a failure.
Tens of thousands of Chinese had already voted which patriotic songs should be broadcast back to Earth by the unmanned satellite when it reaches the moon early next month. Among the winning songs are Love Our China, and Walk into the New Era.
"It is as if we are seeing the manifestation of the central government's mighty power," a farmer named Mr Wu said, adding: "If we have the ability to send a satellite to the moon, why is it so difficult to send all corrupt officials to prison?"
Chinese television broadcast the event live, with senior leaders present at the launch, including vice-premier Zeng Peiyan.
Fears of a space arms race have grown since January, when China destroyed one of its old weather satellites with a ground-based missile in an apparent display of strength against the US, whose sophisticated military communication system depends on satellites.
China's space programme has come a long way since Mao Zedong complained that China couldn't even "launch a potato" into space in the early 1950s.
In 2003 China became the third country to put a man into space. Yang Liwei has since become a national icon. Speaking at last week's National Party Congress, the astronaut expressed his hope that a Communist party cell would one day be established in orbit.
In addition to its political, scientific and military benefits, China's new space programme also carries economic advantages for the country. The government last year said it planned to relax restrictions allowing private companies to invest in the industry.
Between 1990 and 1998, China sent 29 overseas satellites into space for more than ten countries until a US State Department ban in 1999 preventing it launching satellites using US-made components.
But now that it has proven its own technological capability, analysts say that China's lower costs and relaxed regulations on space technology exports make it a strong player again in the satellite launch market.
SENDING SONGS FROM SPACE
THE orbiter is named after a mythical Chinese goddess who was banished to the earth with her husband for offending a heavenly emperor. Stealing an elixir for eternal life, she flew to the moon only to regret abandoning her husband and ending up sad and lonely.
The Chang'e One orbiter will beam back to the earth 32 songs selected by the Chinese government and public, including the national anthem and the classic revolutionary tune The East is Red, also broadcast by China's first satellite in 1970.
Most are patriotic and traditional, but they will also include moon-themed ones, such as Chinese pop diva Faye Wong's rendition of a famous Song Dynasty poem.
The satellite is expected to beam back its first pictures of the moon in late November and continue in lunar orbit for about a year, taking 3D images of the surface and analysing the distribution of elements.
Yesterday's launch marks the first step in a three-stage moon mission, to be followed by an unmanned landing and deployment of a moon rover in 2012 and the retrieval of lunar soil and stone samples around 2017. Chinese scientists have talked of the possibility of sending a man to the moon after 2020.