The storm's eye came ashore evening about 30 kilometres northeast of San Jose del Cabo, and the Category 2 storm was moving north at 15 kph.
Forecasters said it would likely lash the capital of La Paz with top sustained winds of 180 kph before crossing the narrow stretch of land and heading out to sea.
Some streets were flooded in Cabo San Lucas, but the water was ankle-deep at its height.
Stores reopened two hours after hurricane-force winds first lashed the peninsula and residents who spent all day in shelters emerged into the streets.
In San Jose del Cabo, a brief bout of heavy winds toppled the signs of shops and sent metal gates flying in the air. But there were no reports of major damage.
Thousands of tourists who hadn't been able to get flights out of Los Cabos were huddled in hotel shelters.
As many as 8,000 tourists remained in Cabo San Lucas on Friday, most of them American. Hundreds of other foreigners are full-time residents.
Los Cabos, with a total population of 105,470, refers to the two resort cities of San Jose del Cabo and Cabo San Lucas on the southern tip of the peninsula.
Ernesto weakens
On the US mainland, Ernesto weakened to a tropical depression, but the storm still packed enough punch to dump more than 30 centimetres of rain, knock out power to more than 300,000 customers and force hundreds of people from their homes.
The storm prompted flash flood watches for wide sections of Virginia, Pennsylvania, New Jersey and central New York.
"Nobody is relaxing until long after the storm has passed," Virginia Governor Timothy M Kaine said.
The storm was blamed for at least one traffic death in Virginia and one in North Carolina, where it swirled ashore late Thursday, a day after severe thunderstorms had already drenched the region.
Ernesto's top sustained wind reached 112 kph , just 6 1/2 kph below hurricane strength, as it passed over land at Long Beach, North Carolina, just west of Cape Fear. Its sustained wind speed has now dropped to 56 kph.
Meanwhile, a team of hurricane forecasters in Colorado have lowered their expectations for the 2006 Atlantic season, predicting only five hurricanes instead of the seven previously forecast.