Wearing a dark suit but sticking to his refusal to wear a tie, the former leader of poor coca leaf growers fought back tears as he took an oath of office in front of 11 presidents and government leaders from Latin America and Europe along with Bolivian politicians.
While many countries and multinational oil firms are anxious over his policies, Mr Morales concentrated his first speech on how he would bring justice to the indigenous population and ease crippling poverty.
Mr Morales held a moment of silence for those who died in social campaigns in Bolivia in recent years, calling them "martyrs".
Indigenous majority
Stressing how Bolivian Indians make up 62 percent of the population, he said: "We have been condemned, humiliated ... and never recognised as human beings."
"Five hundred years of campaigning and popular resistance by indigenous people has not been in vain," he said.
"We are here and we say that we have achieved power to end the injustice, the inequality and oppression that we have lived under."
His fiery speech also mentioned Latin American revolutionaries Che Guevara and Simon Bolivar.
Mr Morales has said he will increase state control of valuable natural resources in a bid to ease the huge poverty divide in the country.
But the United States is concerned over Mr Morales' promise to end restrictions on production of coca leaf, the core ingredient for cocaine.
The US government has spent millions of dollars trying to eradicate coca.
Many governments are also anxious to see what impact his policies have in a region where leftist governments have increasing power.
Among those present at the ceremony were Venezuela's socialist president Hugo Chavez, another virulent critic of the United States, and Brazil's President Luiz Inacio Lula da Silva, a former union leader.
The US was represented by Assistant Secretary of State for the
Western Hemisphere, Tom Shannon, who held talks with Mr Morales on Saturday.
On the campaign trail, Mr Morales said he would be the United States' "worst nightmare" but has since been more conciliatory saying he wants dialogue with Washington.
After meeting Mr Shannon, Mr Morales told reporters: "Relations between Bolivia and the United States are going to continue."
Indian ceremony
None of the invited leaders were present for Saturday's colorful indigenous ceremonies, which were packed with symbolism in a country long ruled by the European-descended elite.
About 20,000 Aymara and Quechua Indians clad in brightly colored ponchos gathered at the ruins of one of the oldest pre-Columbian cities of the Americas to see the Aymara Indian who won Bolivia's presidency by a landslide invested with sacred powers by a shaman chief.
Representatives of indigenous groups from Central America, the Amazon, Mexico, the United States, the Andean region, southern Chile and Argentina were present at the event, even a delegation from the Philippines.
Exploit resources
Despite Mr Morales' declared intentions, Bolivia lacks the funds to exploit its resources and needs foreign energy partners, meaning he will have to make tough calls between populism and pragmatism to improve the lives of Bolivia's 9.3 million inhabitants, 64 percent of whom live in poverty.
Mr Morales rose to prominence as a leader of street protests and roadblocks that helped topple two Bolivian presidents in the past three years.
He was elected on December 18 with almost 54 percent of the vote, the widest margin of any elected leader since democracy was established in 1982 after years of military rule.