The Xperia Play is widely seen as an attempt to breathe new life into the platform in the face of competition from games-capable smartphones.
It is among a plethora of new devices being unveiled at Mobile World Congress in Barcelona.
Other headline-grabbers include the first handset to feature a 3D screen.
A large crowd turned out for the launch of the PSP phone, which had been rumoured for some time.
The device, which runs Google's Android operating system, incorporates a pull-out control pad and will feature a catalogue of games, from Electronic Art's Fifa series to Assassin's Creed, the Sims and Dungeon Defender.
Sony has been under pressure to reinvent its mobile gaming platform, which launched in 2004 and, aside from minor refinements, has remained largely unchanged.
In recent years, sales of the PSP have gradually declined.
Figures from October 2010 show that the company shipped 3.6 million PSPs, down from 4.2 million the previous year.
iPhone challenge
Many gamers have found themselves drawn to devices such as Apple's iPhone that feature faster processors and higher resolution screens.
Johnny Minkley from Eurogamer.net told BBC News: "I think this is a very smart move for Sony.
"It shows that they are taking seriously the threat that Apple poses to them in the mobile gaming market."
The Xperia Play is due to go on sale in March with titles from 20 gaming partners.
It is part of a Sony's broader strategy to bring gaming to mobile phones.
Its PlayStation Suite, announced last month, is a cross-platform system that will allow different mobile manufacturers to build PSP gaming into their devices.
The company is also expected to launch a more powerful successor to the PlayStation Portable, codenamed NGP.
'Gimmick'
Elsewhere at Mobile World Congress, LG unveiled the first mobile phone with 3D capability, along with a 3D tablet.
Both allow users to users to shoot 3D images and video, as well as upload their clips directly to YouTube.
Analysts at research firm CCS Insight said that consumer demand for 3D phones remained "unclear" and could be regarded as a "gimmick".
However, they said the experience of using the phone is "better than many may expect".
Jim Michel, head of LG's mobile division in the UK, defended the technology.
"It is definitely not a gimmick. More films are being sold in 3D and it is great to squeeze that onto a small screen," he said. The first mobile phone to incorporate the Playstation Portable (PSP) gaming system has been launched by Sony Ericsson.
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