We present the final results of the CP-PACS calculation of the light hadron spectrum and quark masses withtwo flavors of dynamical quarks. Simulations are made with a renormalization-group improved gauge action anda mean-field improved clover quark action for sea quark masses corresponding to mPS/mV 0.8–0.6 and thelattice spacing a = 0.22–0.11 fm. For the meson spectrum in the continuum limit a clearly improved agreementwith experiment is observed compared to the quenched case, demonstrating the importance of sea quark eects.For light quark masses we obtain mMSud (2GeV ) = 3.44+0.14-0.22 MeV and mMSs (2GeV ) = 88+4-6 MeV (K-input) andmMSs (2GeV ) = 90+5-11 MeV (-input), which are reduced by about 25% compared to the values in quenched QCD.