The company, owned by Spanish telecoms firm Telefonica, launched O2 Lease at the weekend, initially available in its retail stores and over the phone.
O2 Lease enables new or existing customers to rent a new 16GB smartphone for 12 months for £55 per month, including insurance, 750 minutes, unlimited texts and 500MB of mobile data.
Apple's iPhone 4S is currently available on the scheme, and customers can pay an extra £10 per month to get the 32GB model.
Sally Cowdry, marketing and consumer director for O2 UK, said: "This is the first time a UK mobile operator has adopted a leasing model.
"We know that customers and small businesses are used to leasing everyday items from cars and washing machines to photocopiers and office space.
"They understand how it works and what the advantages of a leasing are. We have simply taken this idea and applied it to the smartphone market."
The service is aimed at people who want the latest smartphones with "minimal barriers, little long-term commitment, and no upfront cost", said O2.
O2 Lease is available on a one-year contract rather than the usual 18-month to two-year commitment.
The customer does not own the phone and so must return the handset to O2 at the end of the year, or take a new phone on a fresh lease. All leased handsets are insured against damage or loss.
O2 said that the leasing tariff model "reflects the lifecycle of the smartphone industry".
Cowdry added: "Innovation is not just about product, it is also about service, providing new ways for people to buy. We want to ensure that customers can pick and use the right option for them."