Police were deployed throughout the capital to ensure security for the event.
Invitees included US Vice President Joe Biden, Mexican President Enrique Pena Nieto, Ecuador's President Rafael Correa and Central American leaders.
Spain's former king Juan Carlos also arrived at a military airbase to take part.
Morales, 46, was previously best known for a television role as a country bumpkin who nearly becomes president.
Elections on October 25 elevated him to the office of head of state for real, by a landslide, despite having no political experience beyond an unsuccessful run for municipal office in 2011.
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Yet his political support is weak, with his conservative FCN-Nacion party holding just 11 seats in the 158-seat Congress.
Thus far, Morales has given few concrete indications of how he intends to make good on his vows to fight corruption, or respond to the country's high murder rate and poverty.
"I will work with all my heart and strength not to let you down," he said after his election triumph.
His government is expected to be unveiled hours after the inauguration ceremony, which was pared down on his orders to save money.
Morales has denied the party has anyone tied to civil war abuses in its ranks.
But one of its newly elected lawmakers is Edgar Ovalle, a former officer accused of human rights violations in the war who is fighting prosecutors' efforts to strip him of immunity.
Guatemala has still not recovered from the social problems caused by the 36 years of conflict.
Plagued by gang- and drug-related violence, it recorded 6,000 murders last year alone.
Its problems were heightened by political instability last year when protests erupted over a corruption scandal exposing kickbacks to officials in return for lowered customs duties for some companies.