Schoolchildren and space enthusiasts around the world watched live Jan. 28, 1986, as the Challenger lifted off carrying seven astronauts, including the first teacher, Christa McAuliffe, to embark on a mission to space.
The shuttle exploded 73 seconds after launch at an altitude of 14,000 metres (46,000 feet), killing everyone on-board.
"This year marks the 25th anniversary of the loss of Challenger -- a tragedy that caused us to completely re-think our systems and processes as we worked to make the shuttle safer," said NASA chief Charles Bolden.
"The nation will never forget Jan. 28, 1986, nor its indelible images."
Engineers determined that the blast was caused by the failure of a joint seal caused by cold weather.
Bolden attended a wreath-laying ceremony at Arlington National Cemetery outside Washington on Thursday, and flags at NASA stations were flown at half-staff.
A total of 24 people have been killed while supporting the space agency's mission since 1964, NASA said.
Among them were seven astronauts killed aboard the Columbia in 2003 when the space shuttle disintegrated upon re-entry to Earth cvaused by a damaged heat shield that was compromised by a broken off piece of insulation.
Three astronauts died aboard the Apollo 1 in 1967 when a fire broke out during a launch pad test.
"NASA has learned hard lessons from each of our tragedies, and they are lessons that we will continue to keep at the forefront of our work as we continuously strive for a culture of safety that will help us avoid our past mistakes and heed warnings while corrective measures are possible," Bolden said.
"The legacy of those who have perished is present every day in our work and inspires generations of new space explorers."
The United States plans to retire its space shuttle program this year. The shuttle Discovery is set to launch on Feb. 24, followed by Endeavour on April 18.
If the space agency can secure the funding from Congress, a final voyage to the International Space Station is scheduled for Atlantis at the end of June.
The shuttles made a major contribution to the construction of the ISS, a multibillion-dollar project begun in 1998 and financed largely by the United States.
After the fleet is retired, international space agencies will have to rely on Russian space capsules for access to the ISS.