The mourners - which included homeless, prisoners, migrants, prostitutes and transgender people - held white roses and saluted the pope as the procession entered the basilica.
The extraordinary gesture was made in a nod to Francis's particular care for the downtrodden, whom the pontiff had a well known affection towards.
'The poor have a special place in the heart of the Holy Father, who chose the name Francis to never forget them,' the Vatican said.
Francis, who died on Monday, aged 88, from a stroke and irreversible heart failure, is breaking with tradition and will be buried in the Santa Maria Maggiore Basilica, where a simple underground tomb awaits him with just his name: Franciscus.
The Pope said in his final testament that he wanted to be 'in the ground; simple, without particular ornamentation'.
People will be able to visit his grave from Sunday morning, the Vatican announced.
Hundreds of thousands of people turned out in St Peter's Square, joining world leaders and special guests to mourn and formally mark Francis' passing.
Bells tolled as the last of leaders from more than 150 countries took their places on Saturday.
The massive crowd was largely silent, watching proceedings on several large screens around the square.
Applause then rang out at the start of the ceremony as 14 white-gloved pallbearers carried the coffin, inlaid with a large cross, out of St. Peter's Basilica and into the square.
The pope's casket was placed on a carpet in front of the altar, with the book of gospels laid on top, as the Vatican choirs sang.
Choirs sang Latin hymns and prayers were recited in various languages, including Italian, Spanish, Chinese, Portuguese and Arabic, reflecting the global reach of the 1.4-billion-member Roman Catholic Church.
Massed ranks of red-robed cardinals sat to one side of the altar, facing rows of black-suited world leaders on the other side.
In front of them were hundreds of priests in white vestments and then thousands of ordinary mourners.
The crowd broke into applause when Italian Cardinal Giovanni Battista Re spoke of Francis' care for immigrants, his constant pleas for peace, the need for negotiations to end wars and the importance of the climate.
'Rich in human warmth and deeply sensitive to today's challenges, Pope Francis truly shared the anxieties, sufferings and hopes of this time,' Re said.
The open-air ceremony, was celebrated by 220 cardinals, 750 bishops and more than 4,000 other priests and last around 90 minutes.
Among the other heads of state who flew into Rome were the presidents of Argentina, France, Gabon, Germany, the Philippines and Poland, together with the prime ministers of Britain and New Zealand, and many royals, including the king and queen of Spain.
Ireland's delegation sat ahead of both William and the British Government delegation as it is led by head of state President Michael D Higgins.
Francis's birth country Argentina took precedence in the seating, as it was Francis' country of birth, followed by Italy.
The British Government delegation includes Sir Keir Starmer and his wife, Victoria, as well as Foreign Secretary David Lammy.
Following the service, Francis's coffin was taken from St Peter's Square to Santa Maria Maggiore where has been buried.
The route crossed the river Tiber and passed Piazza Venezia followed by the Colosseum.
Francis left instructions asking to be buried in a simple underground tomb in Rome's papal basilica of Saint Mary Major.
The burial was held in private. This makes Francis the first pontiff in more than a century not to be buried at St Peter's Basilica.
The last pope who asked to be buried outside of the Vatican was Pope Leo XIII, who died in 1903.