Moore's defeat marks a major political blow to Trump, who endorsed the Alabama Republican and held a rally on his behalf. Although most national Republicans distanced themselves from Moore following the allegations against him, Trump reaffirmed his support to the firebrand conservative through tweets and public statements.
With all counties reporting, the Alabama Secretary of State John Merrill reported Jones with 49.92 per cent of the vote, and Moore with 48.38 per cent of the vote.
But Moore has so far refused to concede.
"When the vote is this close ... it's not over," the 70- year-old told supporters after Jones declared victory in a special election.
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The margin of victory is well above the half a percentage point which would have triggered a recount.
This is for the first time in a quarter century that a Democrat has won a Senate seat in the Republican stronghold of Alabama.
The unexpected victory of Jones also narrowed the Republican majority in the 100-member Senate to 51-49. The result could also become a factor in upcoming legislative battles, as Republicans will have one less vote in the narrowly divided Senate in 2018, US media reports said.
Trump congratulated Jones for his "hard fought" victory.
"Congratulations to Doug Jones on a hard-fought victory," Trump tweeted.
"The write-in votes played a very big factor, but a win is a win," Trump said in his first reaction.
"The people of Alabama are great, and the Republicans will have another shot at this seat in a very short period of time. It never ends!" tweeted the US President.
The Washington Post noted that Moore's defeat showcased voter backlash to sexual misconduct allegations and the limits of President Trump's political influence.
"Democrats pull off an upset in Alabama," The New York Times said as it declared victory for Jones. It described the victory of Jones as a rare Democratic victory in a staunchly Republican state.
"The race captivated the nation, not only for its debates over party loyalty and morality, but also for its also immense implications for both parties and the Trump presidency," the paper said.
With this victory, Jones, a former US attorney, has become the first Democrat elected to the Senate from Alabama since 1992.
"Doug Jones will be an outstanding Senator who will represent Alabama well. He was a great candidate and will be an even better Senator," Senate Minority Leader Senator Chuck Schumer said.
Indian-American Congresswoman Pramila Jayapal said Jones' win was a massive victory for the country.
Allegations of sexual misconduct against Moore drew national attention to the special election. The claims against Moore came amid a wave of allegations of sexual misconduct against several prominent men in the world of politics, entertainment and media.
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