The next-generation console was shown off alongside a new Kinect camera-and-voice sensor and a redesigned gamepad.
The US firm described the voice and gesture-controlled machine as an “all-in-one” system offering games, live TV, movies and music.
The firm’s Entertainment and Devices Division accounted for $9.6bn (£6.3bn) worth of sales in Microsoft’s last financial year.
That only represented about 13% of its total revenue for the period – but one analyst said the importance of this launch should not be underestimated.
“Microsoft is very strong in business software and the enterprise cloud business, but its consumer businesses are facing tremendous challenges: PCs are declining rapidly and Windows Phone handsets have only a fraction of the market shares of rivals,” said Jia Wu from consultants Strategy Analytics.
“Xbox represents Microsoft’s core strategy in the consumer entertainment market, especially after it sold its Mediaroom video distribution business to Ericsson earlier this year.
“This is also the unique asset which Microsoft has that can differentiate itself from Apple, Google and several of the other large tech companies. ”
The new machine sees Microsoft add a Blu-ray drive and Skype functionality to its console, built in feedback into its gamepad triggers, and upgrades its Kinect camera sensor to 1080p high definition resolution.
It said the Kinect would allow the device to better analyse body movements allowing users to more accurately control game characters and navigate other entertainment options.
Microsoft has added the ability to watch live TV with channel selection controlled by voice
“When you’re exercising, it can read your heartbeat,” claimed the firm.
New tools will also allow users to record and edit gameplay so clips can be easily uploaded to the web.
EA Sports was first to announce new titles for the machine revealing Fifa 14, Madden 25, NBA Live 14 and the fighting game UFC would all launch on the platform within the next 12 months using a new games engine called Ignite.
It said the new machine allowed it to carry out four times as many calculations a second as the Xbox 360 and 10 times more “animation depth and detail”.
Microsoft Studios also revealed that Forza Motorsport 5 – the latest in its own racing car franchise – would be available when the console launched.
The division added that it planned to release 15 games within the console’s first year, eight of which would be new franchises.
Another Microsoft unit, 343 Studios, revealed it would release a live-action Halo television series co-developed with movie director Steven Spielberg.