The software has a redesigned user interface and incorporates many of Microsoft services such as Xbox Live and the Zune music service.
The software was presented at an event at the Mobile World Congress in Barcelona.
According to research firm Canalys, Microsoft software currently has about 9% of the smartphone market.
That puts the fourth place in the world market behind Symbian, RIM (maker of the Blackberry) OS and the Apple iPhone.
The new system follows the launch of Windows Mobile 6.5 in October 2009.
"This is obviously a big step forward," said Canalys analyst Pete Cunningham from the BBC.
"Microsoft really have struggled with Windows Mobile 6 and 6. 5 and have been losing market share in the back of it."
However, he said, the company can not be complacent. "
"Although it seems well today and now the competition, other companies have not disclosed their other hand.
"Does not start for another eight or nine months and that's a long time in the mobile world."
For example, in a little over 30 months Apple has won 15% of the smartphone market, according to figures from Canalys, the Android operating system, while Google has acquired 5% of the market in around two years.
Game Machines
Microsoft's new operating system is based on a series of so-called "living pictures", which pull in real-time content from a web site, users and social networks.
The user can create their own tables, for example, to see the latest posts and photos of family and friends in social networks.
"We wanted the software experience to focus primarily on what is most important for each user," said Joe Belfiore, the launch of the company.
The new interface also has a series of "hubs"-related content via the web, applications and services in a single view.
The six supply centers are the sources of people, images, games, market, music and office supplies.
The center of gambling, for example, incorporates elements of enterprise network Xbox Live online gaming, including games and the possibility that players can access their profiles online.
The center brings together music video and music content from a user's PC, the online music services and a built-in FM radio.
The first phones with the new operating system will be available later this year from manufacturers such as Samsung, LG, HTC and Sony Ericsson.
"We have the opportunity to make an impact in the market," said Microsoft, Steve Ballmer.
Although Microsoft only provide software for mobile, specifies certain hardware requirements for manufacturers.
For example, all terminals will be multi-touch and comes with a dedicated hardware engine search button Bing Microsoft.
Manufacturers will also be limited to the tables in the elegant user interface, according to Mr. Cunningham. Other operating systems - such as Android - will allow manufacturers to customize the appearance of the interface.
"That can make [Windows Phone 7] less attractive in the long term," he said.
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