Pena Nieto gave a red-carpet welcome to Castro at the Yucatan state government palace in the eastern colonial city of Merida, where the communist leader reviewed troops.
The two leaders, both wearing white shirts with no ties, headed into private talks, during which they are expected to discuss a range of issues, including a recent surge of Cuban migrants in Mexico.
Castro and Pena Nieto are expected to sign agreements related to education, tourism, business and immigration. They are due to address the media later in the day.
Relations were marked by tensions between Fidel Castro and conservative Mexican governments that were in power from 2000 to 2012.