Cairo's district of Nasr City was blocked off to traffic as Mahfuz, who died yesterday after weeks of illness, was given a state funeral, attended by President Hosni Mubarak and top officials.
The author's coffin was wrapped in an Egyptian flag and briefly carried on a horse-drawn hearse down a soldier-lined street in the capital, as the official procession walked slowly behind.
Sheikh Mohammed Sayyed Tantawi of Al-Azhar mosque led the funeral "prayer for the absent" at nearby Al-Rashdan mosque as Egypt mourned the world's foremost Arab writer and one of its most renowned ambassadors.
Funeral live on television
The procession, broadcast live on national television, was preceded by a more intimate religious ceremony when around 200 people gathered at the Al-Hussein mosque in old Islamic Cairo for the public funeral Mahfuz had requested before his death.
SheikhTantawi was also present and paid homage to Mahfuz for "making Egyptian literature known to the rest of the world".
Amid tight security, relatives, friends and admirers gathered in the heart of the city where Mahfuz was born and which he described with great mastery during his seven-decade literary career.
Egypt's top cleric, Grand Mufti Ali Gomaa, celebrated a man "who loved Egypt and was faithful to the nation" as he led the faithful in prayer in the neighbourhood "which saw him come to this world, making it the place of his birth and his death."
World leaders stressed the commitment to peace and dialogue between civilisations of Egypt's foremost novelist.
Friends and fellow artists praised the pioneering nature of Mahfuz's works and his simple kind heartedness.
Mahfuz’s long career
Born in Cairo in December 1911, Mahfuz was Egypt's best-known intellectual with around 50 novels to his name. He began writing at the age of 17 and had his first book published in 1939.
A flurry of other novels followed, but it was the Cairo trilogy - Between the Palaces, Palace of Longing and Sugarhouse, published between 1955 and 1957 - that propelled his name to the forefront of Arab literature.
However, his 1959 novel Children of Gebalawi was banned by Egypt's Islamic Al-Azhar University for his controversial views on religion.
The book brought more trouble for him in the 1980s, when the fundamentalist Jihad group said Mahfuz should be killed for blasphemy.
In 1994 he survived an assassination attempt when a radical Islamist stabbed him.
Virtually every artist in Egypt looked up to Mahfuz, and messages of condolence poured in from disciples, friends and fellow writers who were influenced by his writings.