The opening ceremony - which brought together Turkey's entire ruling elite - went ahead as planned despite the shock assassination of the Russian ambassador to Ankara by a Turkish policeman a day earlier.
Turkey in October 2013 opened the Marmaray rail tunnel underneath the iconic waterway, the first link beneath the waters that divide Europe and Asia.
But the new Avrasya (Eurasia) Tunnel is the first tunnel for cars underneath the Bosphorus and aims to relieve congestion in the traffic-clogged Turkish megacity.
The assassination of Russian ambassador Andrei Karlov yesterday was just the latest in a string of shocking acts of violence in Turkey this year.
Also Read
But Erdogan vowed that his ambitions will not be derailed by the failed July 15 coup and the swathe of terror attacks Turkey has suffered in 2016.
"Subject us to as much terror as you want, bring in as many villains but you will never be able to divide this nation," he told thousands at the opening ceremony.
It was built by a consortium consisting of private Turkish construction company Yapi Merkezi and South Korea's SK Group.
The project comprises a 5.4 kilometre (3.5 mile) tunnel, with the portion beneath the Bosphorus 3.4 kilometres long.
The two-storey tunnel was built with a special tunnel boring machine which had a daily progress speed of 8-10 metres (26-32 feet) on average.
With Istanbul lying on an active seismic zone, the tunnel has been designed to withstand a 7.5 magnitude earthquake.
Erdogan said a trip through the tunnel would cost 15 lira (USD 4.25) until the end of the year, with all the revenues until then going to families of victims of the coup and those who helped defeat it.
Turkish Transport Minister Ahmet Arslan told AFP ahead of the opening that it had been a "huge challenge" to build the tunnel at a depth of 106 metres under the seabed.
He revealed the authorities now planned to build a third tunnel under the Bosphorus that would have three storeys and carry both cars and trains.
Disclaimer: No Business Standard Journalist was involved in creation of this content