The seven-member Truth and Reconciliation Commission has a mandate to investigate crimes committed from 1979 until 2003, when years of civil war came to an end.
"I have come to believe that when the truth is told, humanity is redeemed from the cowardice claws of violence," said President Ellen Johnson Sirleaf, who took over last month from a postwar transitional government.
"We must therefore be courageous sufficiently as a nation to face up to the past and revile as an affront to all civilised people the despicable acts our people endured during the past 14 years of our civil conflict," President Sirleaf told a jubilant audience at the Executive Mansion.
The commission will not have the power to try cases and is modelled on South Africa's truth commission, which was established in 1995 and investigated political crimes committed by all sides during decades of white-minority rule.
A similar commission was set up in Sierra Leone, which is struggling to recover from its own decade-long civil war that began in 1991.
Liberia's parliament passed legislature to create the commission last year, but it had not begun its work until now.
The commission's mandate is to "investigate gross human rights violations and violations of international laws, as well as abuses that occurred during the war, including massacres, sexual violations, murders, extra-judicial killings and economic crimes," according to the act that created it.
In 1979, the government increased the price of rice - a staple food crop in a deeply impoverished nation - sparking massive riots in which dozens of people were killed by security forces.
The following year, President William Tolbert was ousted in a 1980 coup by illiterate Master Sgt Samuel Doe, who ordered the country's Cabinet members tied to poles on a Monrovia beach and executed. Ms Sirleaf, who was finance minister at the time, was jailed but escaped death.
The 1980 coup marked the start of nearly 25 years of instability from which the country, founded by freed American slaves in 1847, is struggling to recover.
Rebels led by warlord Charles Taylor invaded in 1989, plunging the country into civil war. A year later, Doe was captured, tortured and killed by troops loyal to Taylor rival Prince Johnson, who is now a senator in the new government.
"This commission is our hope - to define the past on our behalf in terms that are seen and believed to be fair and balanced, and bring forth a unifying narrative on which our nation's rebuilding and renewal processes can be more securely anchored," Ms Sirleaf said.
The Liberian government has committed $US350,000 ($A474,000) to the commission along with $US500,000 pledged by the United Nations.