Falcon 9 lifts off from Cape Canaveral, Fla., with Dragon on successful test mission. Photo Credit/SpaceX

The Space X and NASA successfully carried out the first flight demonstration of the Falcon 9 rocket and the Dragon capsule on Wednesday. The unmanned two orbit mission marked a significant milestone for the company started by Internet entrepreneur Elon Musk as well as for the space agency’s four-year-old Commercial Orbital Transportation Services Program.

The second of three planned orbital demonstration missions leading to a Dragon rendezvous with the International Space Station could be launched in the late spring, or early summer.

NASA is hoping at least two companies can take over the task of hauling cargo and personnel to the space station at a much lower cost than the space shuttle. The shuttle is facing retirement next year after three decades of service.

“What a great day for SpaceX. What a great day for NASA,” Alan Lindenmoyer, NASA’s COTS program manager, told a post mission news briefing. “What an historic day for commercial space flight.”

During the near three-and-a-half-hour flight, the first and second stages of the Falcon 9 worked flawlessly as the did the guidance, communications and parachute recovery systems, said Musk.

“It’s actually almost too good,” Musk took the briefing. “Everyone did their job so well. There is so much that can go wrong, and it all went right.”

The first SpaceX cargo delivery mission to the space station is planned by late 2011. SpaceX has plans to develop an astronaut carrying version of the Dragon capsule as well, which company officials believe could be ready for its first mission within two to three years of a “go-ahead” from NASA.

Had astronauts been aboard the Dragon craft, they would have enjoyed a comfortable ride, Musk said

The agency’s 2011 budget, which is yet to be passed by Congress, includes funding to begin the initiative.

The Falcon 9 lifted off from Cape Canaveral Air Force Station, Fla., on Wednesday at 10:43 a.m., EST, climbing away on a slightly northerly trajectory. The Dragon capsule settled into orbit nine minutes later, achieving the desired average altitude of 184 miles.

The first attempt to lift off earlier Wednesday was halted by faulty spacecraft telemetry.

Dragon circled the Earth, carrying out a series of test maneuvers before plunging back into the Earth’s atmosphere at 1:15 p.m, EST and descending by parachute into the Pacific Ocean at 2:13 p.m., EST.  Dragon’s splashdown target was the Pacific Ocean, 500 miles west of northern Mexico.

Dragon awaits Pacific recovery Photo Credit/NASA

Much of Wednesday’s activities were streamed over the company’s website, www.spacex.com. SpaceX made extensive use of Facebook, Twitter and other social media to communicate directly with its followers as the flight unfolded.

NASA’s COTS program was started four years ago to foster at least two companies capable of taxing cargo and astronauts to the space station. SpaceX, founded in 2002,  was the first company to reach the launch pad, conducting a successful test flight in June that carried a mockup of a Dragon capsule into orbit.

SpaceX is in line to receive $278 million in NASA funding and two years ago it won a $1.6 billion contract from the space agency to carry out a dozen space station cargo missions. Additional missions could raise the value of the SpaceX agreement to $3.1 billion.

Virginia-based Orbital Sciences Corp. is also working with NASA under the COTS program, and the space agency intends to expand its assistance to other companies in the coming year.