WASHINGTON — First lady Michelle Obama celebrated her husband's inauguration Tuesday night wearing a white chiffon, one-shoulder gown covered in fluffy appliques and beading that will now become part of fashion history.

Designed by 26-year-old Jason Wu, much loved in the fashion world but otherwise not well known, the gathered-skirt gown was surprising for its reserve given Michelle Obama's love of jewel tones and sleek silhouettes. Yet it was unconventional, too, exposing her much-remarked-upon, well-toned arms.

The gown's slight train swirled pleasingly and her shoulder-sweeping earrings picked up the gown's sparkle as she and President Barack Obama danced the evening's first dance at the Neighborhood Ball at Washington's Convention Center.

"First of all, how good-looking is my wife?" the president asked a cheering crowd.

The gown will be donated to the Smithsonian, according to tradition, the first lady's spokeswoman said.

Jill Biden, wife of Vice President Joe Biden, wore a red strapless gown.

Obama wore a white bow tie with a single-vent, notch-collar tuxedo and an American flag pinned to its lapel.

The fashion industry has anxiously looked to the election of Obama for months, embracing his wife as an emblem and ambassador of modern style, who wears clothes from young designers as well as mainstream American retailers.

Earlier in the day, Michelle Obama won applause from style-watchers for the sparkling yellow sheath dress with matching coat by Cuban-born American designer Isabel Toledo that she wore to the swearing-in and parade.

The first lady's selection of Wu, who has only shown a collection since 2006, and Toledo, who had a short stint at Anne Klein but is considered relatively avant-garde, demonstrates one of the reasons she has fascinated the fashion world.

"Her support means so much to designers who can't afford to advertise," said Nicole Phelps, executive editor at Style.com.

Wu, who according to his Web site is just 26, said he sewed the dress himself as late as December. He said he sent sketches to Obama at the suggestion of Ikram Goldman, who owns the Ikram boutique in Chicago where Michelle Obama has been known to shop.

He did not know she had selected the dress until she appeared in it, he said.

"It's soft, feminine, but powerful; I wanted to convey all that in a dress," he said. "I wanted it to look like a sign of hope."

Toledo had much the same message with her lemongrass-colored day ensemble.

"I didn't want a traditional blue or red," she said. "That color has sunshine in it. I fell in love with it. So did she."