It was conducted in a convention centre which was the site of the boxer's last Louisville fight, in 1961.
More than 14,000 people came to remember the former heavyweight world champion with a Muslim prayer service known as a jenazah.
Imam Zaid Shakir presided.
"We are greatly humbled by so many Louievillians and those from other places, from other faith communities who have come here today to witness this ceremony. We are honoured by your presence."
Among those who travelled to Louisville were the civil rights leader Reverend Jesse Jackson, prominent 70s boxing promoter Don King and British singer/songwriter Yusuf Islam, formerly known as Cat Stevens.
"He's obviously not just a boxer. He was a man who, you know, stood by his beliefs and he made them known and people didn't like him for a while, you know, he went against the grain. I feel a bit of resemblance on that score too and so there's a lot that bring me here today. Most of it is just respect for this beautiful man."
Religious professor Sherman Jackson delivered the eulogy, saying Muhammad Ali gave Muslims pride and identity.
"Ali put the question of whether a person can be a Muslim and an American to rest. With his passing, let us hope that that question will now be interred with his precious remains."
Usually under Islamic tradition, Muslims are washed, wrapped and buried within 24 hours of their deaths but an exception was made for Muhammad Ali.
Muslim theologian Timothy J Gianotti has been involved with Ali in planning this funeral for more than 10 years.
He says delaying the boxing legend's funeral seemed appropriate.
"It is not a legal absolute within Islamic law. And so where this is cause and there is benefit we can entertain the possibility of prolonging the period and so in this case we deemed it to be of both benefit and merit to delay the funeral so that people of planet Earth, all of who really believe that Muhammad Ali belonged to them, that they would have an opportunity to travel to come to pay their respects."
Ali's family wanted to ensure the funeral arrangements honoured his Muslim faith.
The service was conducted in Arabic and English.
"Truly, those who say our Lord is God and are upright, the angels will descend upon them, saying, 'have neither fear nor sadness, but rather rejoice in this paradise that you had been promised.'"
An interfaith service will also be held with former US President Bill Clinton and Turkey's President among those paying tribute.
Barack Obama won't be attending because the service clashes with his eldest daughter's graduation ceremony.
After the service, there'll be a procession through Louisville which will pass some key locations, including Muhammad Ali's childhood home and a museum dedicated to him.
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