Mnangagwa, until recently one of Mugabe's closest allies, will take the oath of office at the national sports stadium on the outskirts of Harare before thousands of supporters, dignitaries and foreign diplomats.
Snipers took up positions around the stadium amid tight security as jubilant Mnangagwa supporters streamed in, with many dancing as music played.
"We are excited and expecting a lot from Mnangagwa. We have been under a dictatorship for a very long time," 23- year-old Sharon Mauyakufa said, referring to Mugabe.
The former president, who ruled the southern African country for 37 autocratic years, was ousted from office when the military intervened after he had sacked Mnangagwa as vice president.
More From This Section
"We thank you our soldier," said one banner in the sports ground.
Mugabe is in increasingly frail health and had been positioning his wife Grace as his successor, but the army chiefs acted to halt the plan and usher in Mnangagwa.
Mnangagwa also "assured him and his family maximum security and welfare" for their future as private citizens and "appraised him of preparations for (Friday's) inauguration," the state-run Herald news site also reported.
Buses brought well-wishers to the 60,000-capacity stadium from the early hours of Friday.
"Come and be an eyewitness of history being made, the historic ushering in (of) a new era and better country," said a statement from the ruling ZANU-PF party calling on people to attend the inauguration.
He is known as "The Crocodile" for his ruthlessness and is accused of overseeing ethnic massacres by the army in the 1980s and the 2008 election violence when Mugabe was at risk of losing the vote.
Ahead of the inauguration, the army warned that criminals had been impersonating soldiers since the crisis to extort money from the public and called on Zimbabweans to obey the law.
Britain, the former colonial power, said it was sending Africa Minister Rory Stewart to the ceremony.