The tornado, with winds of at least 158 miles per hour, hit a horse racing track near Henderson, Kentucky, then jumped into Indiana around 2am (0700 GMT) on Sunday.
It cut through a mobile home park and obliterated trailers and houses as residents slept.
"It was just a real loud roar. It didn't seem like it lasted over 45 seconds to a minute, then it was calm again," said Steve Gaiser, who lives near the Eastbrook Mobile Home Park in Evansville.
At least 17 people were killed in the mobile home park, according to Eric Williams of the Vanderburgh County Sheriff's Department.
More people were believed to still be trapped in the debris, and National Guard units were called in to help with search-and-recovery efforts. At least 200 people were injured during the storm.
"They were in trailer homes, homes that were just torn apart by the storm, so they're just now getting in there trying to find people," said deputy Vanderburgh county coroner Annie Groves.
"It's just terrible."
Rescuers on the scene reported seeing children wandering the area looking for their parents and parents searching for missing children.
Children's bicycles and other toys were strewn amid the debris of aluminium siding, mattresses, chairs and insulation.
Five other people were confirmed dead in neighbouring Warrick County, east of Evansville, where the Ohio River city of Newburgh was hit. No deaths were reported in Kentucky.
The storm reduced homes to splinters and scattered debris across the countryside. Entire blocks of buildings were nothing but rubble.
Indiana homeland security spokeswoman Pam Bright said about 100 of the 350 or so homes in at the Evansville mobile home park were destroyed and 125 others there were damaged.
Larry and Christie Brown rode out the storm inside one mobile home.
"Man, it was more than words can say," Larry Brown said.
"We opened the door and there wasn't anything sitting there."
Dead of night
Chad Bennett, assistant fire chief in Newburgh, told CNN that sirens sounded, but most people didn't hear them because it happened in the middle of the night.
The tornado developed in a line of thunderstorms that rolled rapidly eastward across the Ohio Valley. The National Weather Service had posted severe thunderstorm warnings for sections of northern Ohio.
The tornado was the most potent
to strike the area since 1974
Ryan Presley, a weather service meteorologist in Paducah, Kentucky, said a single tornado touched down near Smith Mills in western Kentucky, jumped the river and cut a 15- to 20-mile swath through
Indiana's Vanderburgh and Warrick counties.
The tornado appeared to be at least an F3 on the Fujita scale, which ranges from F0, the weakest, to F5, the strongest. An F3 has winds ranging from 158mph to 206mph, and the tornado that hit on Sunday may have been even stronger, Presley said.
Pregnant woman killed
Warrick County Sheriff Marvin Heilman said the victims included a woman who was eight months pregnant, her husband and a young child in the rural town of Degonia Springs.
A teenage girl was also killed near Boonville, and her father was critically injured, he said.
Tim Martin, 42, was at his parents' mobile home when they heard the wind and then the tornado picked up the home and shoved into the neighbour's yard.
He and his parents escaped unharmed, but they heard several neighbours calling for help. A nearby mobile home was overturned, and another appeared to have been obliterated.
"All I could see was debris," he said. "I thought it was a bad dream."
Patty Ellerbusch, 53, said she and her husband were in bed at their hilltop home in Newburgh when a relative called and warned them of the tornado. They heard a low roar and ran for the basement.
She made it downstairs, but her husband did not. He was blasted with shattered drywall, wood and other debris as the tornado shredded the home's roof.
"He was running down the hallway, and it knocked him down and ripped his glasses off. He said it felt like being in a wind tunnel," she said. The storm stripped the roof off the couple's home and destroyed their barn.
Bright said it was the deadliest tornado in Indiana since 3 April 1974, when an outbreak of several tornadoes killed 47 people and destroyed 2069 homes.
The Ellis Park racetrack, between Evansville and Henderson, Kentucky, had significant damage to barns, the grandstand and other buildings, and some workers were injured, said Paul Kuerzi, the track's vice president and general manager.
"It appears at this point that three horses have died from injuries suffered in storm. It's too early to know if any other horses were injured," Kuerzi said. About 150 horses in training were stabled there.
Mike Roeder, a spokesman for utility company Vectren, said 25,000 homes were without power Sunday. There also were reports of natural gas leaks.