At least six people were confirmed dead in Warrick County and at least 12 were killed in Vanderburgh County, according to county officials. Hospitals reported taking in at least 160.
"We've had severe damage," said Newburgh Assistant Fire chief Chad Bennett. "Homes were totally devastated. "People are having to try to crawl out of their homes."
Officials said the death toll could climb as rescue workers picked through rubble in house-to-house searches and scoured farm fields.
At least two people were found dead in soybean fields in Warrick County, according to the Newburgh fire department.
The Eastbrooke mobile home park in Evansville was one of the places hardest hit when the storm struck well before dawn. Many homes there were reduced to twisted piles of metal that lay mixed with the remains of downed trees and other debris.
An apartment complex in nearby Warrick County was also hit hard, with the top floors ripped off, said Vanderburgh County Sheriff's office spokesman Lieutenant John Strange.
"It is pretty widespread damage," he said.
In Henderson County, Kentucky, the Ellis Park racetrack also suffered major damage. The grandstand was ripped away, several barns were damaged and horses were killed.
Some 21,000 people were left without power and officials declared a local state of emergency as they scrambled to locate and assist survivors and search for victims.
The unexpected funnel cloud hit at about 2 am local time (0800 GMT), with little notice, touching down in Kentucky, then skipping across the Ohio River into southern Indiana. Alarm sirens sounded only about 10 minutes before the twister hit.
"Most people were asleep. They probably didn't hear the sirens," Bennett said.
Televised images Sunday showed dazed survivors wandering through battered neighbourhoods, a scene familiar to US viewers of late. Hurricane Katrina hit the Gulf coast in August, devastating New Orleans and southern Mississippi, followed by Hurricane Rita's strike near the border of Louisiana and Texas in September, and Hurricane Wilma, which caused widespread destruction in Florida last month.
The tornado left a path of destruction about 20 miles (32 km) long and three-quarters of a mile (1.3 km) wide from northern Kentucky across southern Indiana, officials said.