The Dalai Lama, Tibet's exiled spiritual leader and Nobel laureate, condemned the idea when it was first mooted, and critics said the firm needed to address human rights and environmental concerns.
Pictures of the red carpet opening posted online showed long lines at the restaurant, at a shopping mall in the regional capital Lhasa.
"As a diehard fan of KFC I waited in line for ages, and felt like crying when I took my first lick of my ice cream cone," said one elated social media user.
But Beijing insists Tibetans enjoy extensive freedoms and that it has brought economic growth to the area.
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Alistair Currie, of London-based Free Tibet, told AFP: "Tibet is an occupied country and Tibetans have been squeezed out of business and economic development by Han Chinese immigration and China's imposition of Mandarin as the language of education, business and government."
The International Campaign for Tibet said it was asking Yum how it was complying with the US Tibet Policy Act, which requires investments to protect Tibetan culture and livelihoods, and its own pledges of corporate social responsibility.
"It is hard to see how they will be able to implement those principles given the political climate in Lhasa today," said its president Matteo Macacci.
"Tibetans are largely marginalised, economically disadvantaged and subject to a social and economic agenda imposed from the top down in order to ensure the control of the Chinese Communist Party over Tibet.