More than 300 million people use it at least once a day, it added.
The service was bought by Facebook in 2012 for about $1bn (£677m), and has grown rapidly ever since.
According to the company, an average of 95 million photos and videos are posted each day. Co-founder Kevin Systrom told the BBC its success was the result of "a lot of hard work".
In its five and a half years, Instagram has rocketed past Twitter, thanks in part to its adoption by high-profile celebrities and sports stars.
Instagram's biggest competitor for youthful eyeballs, Snapchat, is understood to have surpassed 100 million users.
'Not about ads'
Instagram was launched in 2010, with 25,000 people downloading the app on its first day.
In growing to the 500 million milestone, the app has suffered its fair share of controversy.
In 2012, changes to its terms of service had users worried it was looking to sell their pictures to advertisers. The changes were rolled back - the service insisted the furore was due to a failure of communication, rather than a nefarious monetisation plan. Still, users were unnerved.
Unease about how a Facebook-owned company would seek to bring in profits has followed ever since.
One recent announcement - that photos would be ordered by an algorithm rather than shown in chronological order - was heavily criticised. There was speculation the move was made to cause more adverts to surface in people's feeds.
"I can say for a fact that's absolutely not what this is about," Mr Systrom told the BBC.
"Nothing about ads or how many ads we show is affected by what happens with the algorithm. This is all about making sure that you see the best stuff."
Also irking users of late has been Instagram's logo change.
Out went the nostalgia-tinged old camera icon, and in its place, a simpler rainbow-coloured replacement. It didn't go down well. But then again, logo changes never do.
"Before we launched it, I knew that it would be a tough time for Instagram," Mr Systrom disclosed.
"What separates companies that make transitions like that and they are successful and the ones that fail, are the ones that have resolve and do it for the right reasons.
"We wanted to create a mark that was universal. We did all these studies of companies and how their marks have evolved over time.
"What you see is they go from complex to simpler and simpler and more iconic. We skipped a few steps, and we went straight to iconic."
If seflie culture is some kind of new religion, Instagram is a digital Mecca.
But thought-provoking posts from stars, detailing the excruciating effort that goes into the perfect selfie, have made some question the impact apps like Instagram are having on our views of body image and lifestyle.
Mr Systrom likens selfie culture to art works he studied at school.
"People like to think selfies are new. But if you look at the history of art, what's one of the largest formats?" he asks.
"It's the portrait. Now everyone can be an artist.
"That sense of identity when you're growing up, remembering where you were and what you were doing, is nothing new. I think Instagram just makes it very easy.
"At the same time, we see lots of very impactful images being taken."
Those images range from users posting from within secretive North Korea, to small businesses using Instagram to get products and ideas moving.
But compared with Twitter and Facebook, it could be argued, Instagram lacks the same reputation for social disruption.
"I don't think our job is to wish we are part of any movement more than it happens organically," Mr Systrom said.
"[But] I actually think we are part of the global discourse around these moments, and I'm excited that takes place on Instagram."
With Instagram celebrating its milestone, and a growth in revenue, it's hard to pick holes in its co-founder's strategy.
Fears that Instagram would lose its identity once Facebook stepped in have proved to be unfounded, as were concerns that bringing advertising into the platform would send people away. It hasn't - at least not yet.
But in the dossier of impressive statistics dished out by Instagram ahead of Tuesday's announcement, there was little in there about the types of users they have. We know there are 500 million of them, and that 80% are outside the US.
But what Instagram is less open about is the profile of those users. The health and future potential of any social network rests with new users, and the perception of being a "cool" place to hang out in the digital world.
That makes it difficult to properly assess Instagram's standing against Snapchat and other rivals.
But Mr Systrom says he is not worried about running the coolest network.
"Of course, we have lots of people signing up who are coming of age and learning to use social media," he said.
"Our job is not to be the cool place to be, our job to is to be the most useful and interesting place to be."