It is the first time the firm has laid employees off, bar limited staff cuts after the absorption of other companies, since its founding in 1975.
Steve Ballmer, Microsoft's chief executive, said: "We're certainly in the midst of a once-in-a-lifetime set of economic conditions.
"The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy."
Microsoft still maintains $20.7bn liquidity, but the global recession and a faltering profit margin have forced the decision.
The news came one day after Intel Corp, the world's largest maker of microprocessors, said that it would cut jobs in its manufacturing plants in the Philippines and Malaysia and reduce its operations in the US.
Up to 6,000 staff will be affected between now and December 2009, although not all will be complete job losses.
John Terrett, Al Jazeera's correspondent at the New York Stock Exchange, said that their performance says a lot about the wider condition of the US economy.
"The thing about Microsoft and Intel is that they are bellwether companies. So this is terrible news," he said.
"Intel makes microchips, or semi-conductors, to drive computer hardware, and Microsoft makes software to make it run better.
"If those two firms are not selling as much product, it basically means that companies are not expanding their capital expenditure.
"In other words, they are not buying new computers for their staff. They are not upgrading the software to make their offices run better."
The statistic for new homes being built in the US was at its lowest level since 1991 on Thursday, and the number of Americans signing on for job-seekers benefit was at a 26-year high.