The announcement came as Internet rumors swirled that Palin's youngest son, Trig, actually belonged 17-year-old Bristol.
Bristol Palin was holding her four-month-old baby brother when her mother, Sarah Palin was introduced as presumptive Republican presidential nominee Sen. John McCain's running mate last week. But in four months, Bristol is expected to have a child of her own.
Campaign aides said McCain knew about the pregnancy beforehand, but felt it did not disqualify Palin as his vice presidential pick.
"Senator McCain knew that it would probably, eventually become public, as did Governor Palin," senior McCain campaign advisor Steve Schmidt said.
McCain aides said the decision to make the pregnancy public was to rebut the Internet rumors that Palin's youngest son is actually Bristol's.
In a statement, Palin and her husband said, "we're proud of Bristol's decision to have her baby and even prouder to become grandparents. As Bristol faces the responsibilities of adulthood, she knows she has our unconditional love and support."
Bristol intends to keep the child and plans to marry the baby's father, identified only as a man named Levi.
Conservative groups have offered the Palin family sympathy.
"This is such a typical American family," Bill May, spokesperson for Catholics for the Common Good said. "It's amazing; I'm impressed with the love, the support in the family.
Political analysts have said the revelation of Bristol's pregnancy and the plan to keep the child reinforces Palin's conservative, anti-abortion rights credentials.
But the announcement does come with the risk of potential backlash.
"It means that her underage, unmarried daughter was having sex," California State University, East Bay political scientist Melissa Michelson said. "And so what does that say about her if she can't even control the behavior of her own children, how prepared is she to control the behavior of other people in a position of authority as vice president?"
As for Democratic presidential nominee Sen. Barack Obama, he said Palin's daughter has no relevance in the campaign.
"I think people's families are off limits and people's children are especially off limits," Obama said.
Schools in Alaska are not required by law to provide sex education.
In a 2006 interview, Palin said she supported abstinence-until-marriage education instead of explicit sex education programs.