Hundreds of protesters gathered at the venue at the University of Illinois at Chicago hours before Mr Trump was due.
Inside the auditorium, fighting broke out between supporters and protesters, who waved flags and chanted.
A statement from Mr Trump's campaign said the candidate decided to postpone the event after meeting with police.
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However, a Chicago Police Department spokesman said the force had not recommended that Mr Trump postpone the rally.
The clashes began more than an hour before the event was due to start, and continued after it was cancelled, minutes after Mr Trump was to have appeared.
There were chants for Mr Trump from his supporters and for Democratic candidate Bernie Sanders from some of the protesters.
There were several violent clashes sparked by Trump supporters attempting to wrestle flags from protesters.
One protester had to be physically removed from the stage by what appeared to be a Secret Service agent.
Violent clashes continued outside the venue, with helicopter footage showing chaotic scenes as police attempted to control the large crowds.
One protester, student Ali Alhechimi told the Chicago Sun-Times newspaper: "This is a victory. This is an absolute victory. I want to thank everyone who showed up."
The full statement from Mr Trump's campaign read: "Mr Trump just arrived in Chicago and after meeting with law enforcement has determined that for the safety of all of the tens of thousands of people that have gathered in and around the arena, tonight's rally will be postponed to another date.
"Thank you very much for your attendance and please go in peace."
Speaking to Fox News after the events, Mr Trump denied using hate speech or playing any part in fostering division.
"I represent a large group of people that have a lot of anger," he said. "There is tremendous anger out there on both sides."
Discussing the decision to cancel the rally, he said: "I think it was a very good thing we did, I think it was an intelligent decision."
It was supposed to be a political rally. Instead, many of the scenes resembled a bar-room brawl. Protesters had spent days planning the disruption, and they succeeded. The scenes inside the venue, where Trump supporters and protesters shoved and shouted at one another, were raw and angry.
The two sides have one thing in common: rage. Many Trump supporters are disillusioned and disenfranchised by a political establishment they feel does not represent them. The protesters in turn perceive the tone and rhetoric of Mr Trump's campaign as racist and divisive.
Will it harm the billionaire's election prospects? He may come across as the candidate who was denied the right to speak at his own political event. Or it may make voters wonder whether his entire campaign would be beset by rage. And if it comes down to a contest of angry Americans - are there more with him or against him?
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Mr Trump's rivals for the Republican nomination, Marco Rubio and Ted Cruz, both called the incident "sad".
"When you have a campaign that affirmatively encourages violence," Texas Senator Cruz said, "you create an environment that only encourages this sort of nasty discourse."
Staff at the university had earlier petitioned administrators to cancel the rally, citing concerns it would create a "hostile and physically dangerous environment" for students.
A number of Trump rallies have been interrupted by protesters before.
Earlier on Friday, 32 people were arrested after protests at a rally held by Mr Trump rally in St Louis, Missouri.
Mr Trump was repeatedly interrupted by the protesters, whom he called a "disgrace".
These latest clashes come just a day after a Trump supporter was charged with assault after multiple videos showed him punching a protester at a campaign rally in North Carolina.
The billionaire later said that the supporter's actions were "appropriate".
Donald Trump has called off a rally in Chicago after protests against the Republican presidential front-runner led to violent clashes.