The blue-chip index climbed 2.51 percent or 233.78 points to close at 9,544.97, surpassing its previous record close of 9,374.27 reached on November 23 of last year. The Dow hit as high as 9,562.22 earlier today.
The high-flying Dow also pulled the Nasdaq higher. The technology-laden index rose 3.08 percent or 69.35 points, to reach 2,320.62. The technology-heavy index reached 2,318.16 earlier in the day.
Analysts said takeover speculation in telecoms and auto stocks are fueling the market.
"The momentum of the market is magnificent," said Barry Hyman, market strategist at Ehrenkrantz, King and Nussbaum. "[The markets] are breaking out of their trading range and it looks like the large caps and technology rally will continue."
Nine of the ten most actively traded stocks today on the Nasdaq market and all ten of the most actively traded issues on the New York Stock Exchange blasted higher.
Intel rose 5.07 percent to 129.5 and was the most actively traded issue on the Nasdaq with 26.7 million shares changing hands.
Amazon.com continued its skyward trajectory on news of strong holiday sales, rising 10.74 percent. Other Web stocks that went through the roof include portals Yahoo and Excite which gained 12.85 percent and 21.25 percent, respectively.
On the NYSE, Compaq Computer climbed 0.85 percent and was the second-most active stock with 15.8 million shares traded.
"There's a positive flow of money and we really haven't had any new big negatives in the market to stop that,'' said Mara Glassel, vice president of Prudential Securities Equity Focus Group.
Reuters contributed to this report.