(Read More: Facebook's Instagram Announces Short-Video Feature )
The videos are a maximum of 15 seconds (minimum 3 seconds), with 13 custom filters designed just for video, and the ability to pick your cover frame so that it's not just the first frame of a video. The videos will show up on a user's profile, just like photos, and will be available immediately on both Apple's iOs platform and Google's Android devices.
(Read More: Six Things You Didn't Know About Twitter's Vine App )
Instagram CEO Kevin Systrom said his team went one step further with "groundbreaking technology that changes video forever." The technology identifies movement in your phone and edits it out to make the clip smoother and clearer. The idea is that it will "stabilize" videos, making it easier for consumers and brands to offer a rich video experience.
Instagram is clearly trying to take advantage of its massive user base-130 million active, as of Thursday-to catch up to Twitter's Vine service.
In less than four months, Vine drew 13 million regular users. And by June, people were sharing more Vine videos than Instagram photos on Twitter. Twitter may have done it first, but Instagram has the advantage of massive scale.
Instagram CEO Kevin Systrom made a point of stressing Instagram's reach. In addition to its 130 million active users (up from 100 million in April), the company announced that 16 billion photos have been shared on Instagram, with 1 billion likes each day.
There were also a few digs at Vine. Unlike that app, which launched only on iOs, This one is launching on Android as well. And unlike Vine videos, which reloop automatically, these are not on a loop, making the access them more like that of a photo.
What about ads?
"I have always said our service would become a business over time," Systrom said. "With video, we didn't design it with advertising in mind. ... Right now we're perfectly happy with how businesses are engaging on Instagram, which is organically."
What does that mean? Expect video ads eventually, and carefully, but not yet.
Why all the coffee hints? It's a reference to the fact that Instagram users, especially its die-hard Silicon Valley fans, love taking photos of their Blue Bottle cappuccinos.
-By CNBC's Julia Boorstin, with CNBC's Harriet Taylor. Follow Julia on Twitter: @JBoorstin