Speaking in Miami, Florida, Mr Trump said his new policy would put new restrictions on travel and on sending funds to the Caribbean island nation.
It was the first step in overhauling Barack Obama's March 2016 deal with Cuba which he described as "terrible" and "misguided" - and the latest move to dismantle the former president's legacy.
Mr Trump also signed a presidential directive calling for a more rigorous enforcement of a ban on American tourists going to Cuba, but US airlines and cruise lines will still be able to serve the island.
Despite some of the restrictions imposed, Mr Trump says he will not close the US embassy in Havana or roll back on key diplomatic ties. Commercial flights from the US will also continue. American visitors still allowed to bring back all the rum and cigars they can manage.
Image:Mr Trump's revised Cuba policy is aimed at halting the flow of US cash to the countryMr Trump has faced pressure from businesses, tour operators and politicians, not to completely reverse the diplomatic thaw with America's Cold War foe established by his predecessor.
There was also resistance within Cuba. Granma, the Cuban government's state-run newspaper, said the President was "stuck in a failed policy that has caused much damage to the Cuban people and has left the United States isolated".
Mr Trump stated that he would try to prevent US dollars from being used to invest in what the administration sees as a repressive military-dominated government.
"The profits from investment and tourism flow directly to the military," he said to applause. "The regime takes the money and owns the industry."
Image:Barack Obama and Raul Castro celebrated ending five decades of hostilityMr Trump said Mr Obama's agreement with Raul Castro's government led to an increase in violence and instability in the country, and enriched the brutal communist regime that imprisons its own people.
"They fought for everything and we just didn't fight hard enough, but now those days are over. Now we hold the cards. We now hold the cards," Mr Trump said to the delight of Cuban exiles in Miami's Little Havana community.
"Therefore effective immediately, I am cancelling the last administration's completely one-sided deal with Cuba."
But back in Washington, a storm over Russia was brewing. Before he left the White House for his Miami trip, the President appeared to confirm for the first time that he was under investigation as part of the Russia probe.
In an early morning tweet, he said: "I am being investigated for firing the FBI Director by the man who told me to fire the FBI Director! Witch hunt."
Image:Mr Trump has made a thinly-veiled swipe at Deputy Attorney General Rod RosensteinIt wasn't clear who he was talking about, but appeared to be a thinly-veiled swipe at Deputy Attorney General Rod Rosenstein.
Mr Rosenstein wrote a memo in May that the White House used to justify the firing of the ex-FBI chief. Mr Rosenstein took over the investigation into whether Russia tried to tip the US election in favour of Mr Trump after Attorney General Jeff Sessions recused himself in March.
The latest tweet from Mr Trump fuelled speculation that Mr Rosenstein may also recuse himself of his role if he could potentially be a witness in the Russia probe. That would represent the latest twist in an increasingly dramatic and unpredictable investigation. Although Mr Rosenstein appointed a special counsel, he still makes the final decisions about resources, personnel and - if necessary - any prosecutions.
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