Any state of matter is classified according to its order, and the kind of order a physical system can posses is profoundly affected by its dimensionality. Conventional long-range order, like in a ferromagnet or a crystal, is common in three-dimensional (3D) systems at low temperature. However, in two-dimensional (2D) systems with a continuous symmetry, true long-range order is destroyed by thermal fluctuations at any finite temperature. Consequently, in contrast to the 3D case, a uniform 2D fluid of identical bosons cannot undergo Bose-Einstein condensation. Nevertheless, it can form a "quasi-condensate" and become superfluid below a finite critical temperature. The Berezinskii-Kosterlitz-Thouless (BKT) theory associates this phase transition with the emergence of a topological order, resulting from the pairing of vortices with opposite circulations. Above the critical temperature, proliferation of unbound vortices is expected. Here we report the observation of a BKT-type crossover in a trapped quantum degenerate gas of rubidium atoms. Using a matter wave heterodyning technique, we observe both the long-wavelength fluctuations of the quasi-condensate phase and the free vortices. At low temperatures, the gas is quasi-coherent on the length scale set by the system size. As the temperature is increased, the loss of long-range coherence coincides with the onset of proliferation of free vortices. Our results provide direct experimental evidence for the microscopic mechanism underlying the BKT theory, and raise new questions regarding coherence and superfluidity in mesoscopic systems.
