We report on HST and Palomar optical images of the field of GRB 990123, obtained on 8 and 9 February 1999. We find that the optical transient (OT) associated with GRB 990123 is located on an irregular galaxy, with magnitude V=24.20 +/- 0.15. The strong metal absorption lines seen in the spectrum of the OT, along with the low probability of a chance superposition, lead us to conclude that this galaxy is the host of the GRB. The OT is projected within the ~1'' visible stellar field of the host, nearer the edge than the center. We cannot, on this basis, rule out the galactic nucleus as the site of the GRB, since the unusual morphology of the host may be the result of an ongoing galactic merger, but our demonstration that this host galaxy has extremely blue optical to infrared colors more strongly supports an association between GRBs and star formation. We find that the OT magnitude on 1999 Feb 9.05, V = 25.45 +/- 0.15, is about 1.5 mag fainter than expected from extrapolation of the decay rate found in earlier observations. A detailed analysis of the OT light curve suggests that its fading has gone through three distinct phases: an early rapid decline (f_{nu} \propto t^{-1.6} for t < 0.1 days), a slower intermediate decline power-law decay (f_{nu} \propto t^{-1.1} for 0.1 < t < 2 days), and then a more rapid decay (at least as steep as (f_{\nu} \propto t^{-1.8} for t > 2 days). The break to steeper slope at late times may provide evidence that the optical emission from this GRB was highly beamed.