Video footage released by Russian television showed Mr Putin’s distinctive walk along the Great Kremlin Palace’s long corridors, thanking supporters as they applauded him.
He has pledged new economic reforms that would boost living standards across Russia.
“We must use all existing possibilities, first of all for resolving internal urgent tasks of development, for economic and technological breakthroughs, for raising competitiveness in those spheres that determine the future,” he told thousands of guests.
“A new quality of life, well-being, security and people’s health – that’s what’s primary today.”
Mr Putin has been in power in Russia since 1999, either as prime minister or president, and is Russia’s longest-serving leader since Soviet dictator Joseph Stalin.
He first became prime minster in 1999 before becoming president four months later, when Boris Yeltsin named him as his favoured successor.
Due to term limits he stepped down from the presidency in 2008 but continued to serve as prime minister until returning to the presidency in 2012.
After a landslide victory in March, Mr Putin, 65, is expected to continue to control Russia until at least 2024, despite protests on Saturday amid a crackdown on encrypted messaging app Telegram.
Supporters see him as a father-of-the-nation-type figure who has restored national pride and expanded Moscow’s global power.
A respectful gun salute was held outside the Kremlin at Mr Putin was sworn in.
The ceremony was watched across the world, with the Russian leader finding himself increasingly at odds with much of the international community.
Russia’s annexation of Crimea and Mr Putin’s support for Syria’s Assad, as well as its alleged responsibility for the chemical poisoning of former spy Sergei Skripal in Salisbury, have resulted in sanctions against the country.
Mr Putin’s inauguration follows nationwide rallies and protests which resulted in the arrests of at least 1,200 demonstrators.
Russia’s interior ministry said about half of the arrests happened in Moscow, but monitoring group OVD-Info put the number at more than 1,600 across 20 cities.
Protest leader Alexei Navalny was arrested in Moscow’s Pushkin Square on Saturday, but he later tweeted that he had been released and will face charges of organising an unauthorised meeting and of resisting police.
Mr Putin’s inauguration comes ahead of Russia hosting the World Cup this summer.
In a widely expected win in March, Mr Putin secured more than 76.66% of the vote and a turnout of 67.47%, the Central Election Commission said.
The result came amid allegations of election violations, including ballot-box stuffing and forced voting.
Addressing a crowd near Moscow’s Red Square shortly after the count, Mr Putin said his victory was a vote of confidence in his achievements.
“It’s very important to maintain this unity,” he said.
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“We will think about the future of our great Motherland,” he said, before leading the crowd in repeated chants of “Russia!”
Asked later if he could seek the presidency again in 2030, Mr Putin replied: “It’s ridiculous. Do you think I will sit here until I turn 100?”