The 64-year-old cleric succeeded Mahmoud Ahmadinejad after receiving the formal endorsement of Iran's supreme leader Ayatollah Ali Khamenei.
Khamenei praised Rowhani as a "competent individual" who has loyally served in Islamic institutions for more than three decades.
His top job was to lead Iran's nuclear negotiating team from 2003 to 2005.
As nuclear negotiator he oversaw a moratorium on uranium enrichment, the process at the heart of Western concerns over Iran's nuclear ambitions -- winning kudos abroad and criticism at home.
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Rowhani begins his four-year term as Iran's new president facing grave challenges over its ailing economy and international isolation due to the controversial policies of his hardline predecessor.
Ahmadinejad, who Rowhani accused of needlessly antagonising the international community, had a turbulent double-term presidency marked by frequent outbursts against Israel and a disputed re-election in 2009 that saw a heavy-handed crackdown on dissent.
After his June election victory, Rowhani pledged "no surrender" to Western demands in talks on Iran's nuclear drive but also promised a more constructive and less adventurist approach.
A portly man with a kindly face and a salt-and-pepper beard, Rowhani wears the white turban reserved for mid-ranking clerics.
He was the lone cleric among the six candidates approved to stand in the presidential election, and benefited from the withdrawal of Mohammad Reza Aref, a vice president under reformist president Mohammad Khatami.
Although a member of the conservative Association of Combatant Clergy, Rowhani won the votes of reformists and moderates alike thanks to endorsement from Khatami and another ex-president, the conservative Akbar Hashemi Rafsanjani.
He was a deputy in parliament, served as secretary of the supreme national security council -- Iran's top security post -- and became in 2000 a member of the Assembly of Experts, the body supervising the work of Khamenei who has the final say in all strategic matters, including nuclear policy.
EU and US sanctions over the past two years have sent inflation soaring to more than 30 percent while the rial lost nearly 70 per cent of its value against the dollar.