Loud cheers erupted as Kejriwal took the oath of office in front of tens of thousands of supporters in a park after living up to his "ordinary man" reputation by riding the subway to the ceremony.
"I will do my duties as a minister honestly," said Kejriwal, a political outsider who led his upstart anti-graft Aam Admi -- Common Man -- Party to a stunning electoral showing in state polls this month.
The 45-year-old engineer, wearing his trademark Gandhian white cap, said he had no "magic wand" to solve the megacity's massive housing, infrastructure and sanitation problems.
"But the people, not the police or bureaucrats will run government," he said, adding, "If we all come together, then we can change the country."
Cries of "Long Live the Aam Admi Party" rang out from supporters who waved banners declaring "Today Delhi, Tomorrow the Country" as well as brooms -- the party's symbol for cleaning up India's corruption.
Police estimated the crowd, many of whom wore the party's famous cap that says "I am a common man," at up to 100,000.
The party, formed just a year ago, won 28 state seats, humiliating the Congress party which was reduced to just eight seats.
Congress's rout in Delhi and three other state polls has been seen as one more sign the powerful Nehru-Gandhi dynasty, which has given India three premiers since independence, may lose office in looming general elections.
The rookie party's performance will be closely watched to see what it could offer the rest of India. Kejriwal has a radical programme to slash electricity costs, supply free water and decentralise power.
Kejriwal called his party's journey to power "nothing short of a miracle" and took no time to celebrate, starting work immediately.
"He's a simple man, a workaholic. He rises at 4.30 and goes on to 11.30 at night," Mayank Gandhi, a new minister, told the NDTV news channel.
The former tax inspector's unprecedented move to use the subway to travel to his swearing-in ceremony echoed a pre-poll pledge to end the privileged culture surrounding Delhi's politicians and set a down-to-earth tone for his administration.
"I appeal to my party, let us never become arrogant," said Kejriwal, whose appeal spans many classes from domestic servants to teachers and business owners.
Business leaders congratulated Kejriwal on taking office.
"A strong message has gone to the established political system that there is no going away from the basic issues of governance," said Rana Kapoor, head of the Associated Chambers of Commerce and Industry of India.
Breaking tradition, Kejriwal has said he and his ministers will not occupy the sprawling white bungalows surrounded by lush lawns built by India's former British colonial rulers.
Kejriwal, named the Newsmaker Of The Year ny the news weekly India Today, plans to continue living in his modest suburban flat.
"He has emerged as a new moral force in Indian politics," wrote India Today editor-in-chief Aroon Purie.
The Ramlila Maidan where Kejriwal was sworn in is considered ground zero of India's anti-corruption movement where huge rallies were held two years ago.
Some observers believe Kejriwal's Delhi success could mark the start of a bigger campaign to break the grip of the two main parties, Congress and the Hindu nationalist Bharatiya Janata Party, on national politics.
Both parties have been tainted by scandals. But the test would be to increase the Aam Admi Party's strength nationally in time for the May elections.
"The political evolution has begun across the country," party spokesman Raghav Chadha said.
Kejriwal came to prominence as an adviser to elderly social activist Anna Hazare whose anti-graft drive galvanised India in 2011.
Kejriwal went on to found his own party after the men fell out over strategy. Hazare, now 76, wanted the struggle to remain non-partisan while Kejriwal felt he should enter the electoral fray.
Hazare appeared to give his blessing to his one-time protege on Saturday, telling reporters, "He will do good work."
The BJP, tipped to win the general elections, came first with 31 seats in the Delhi polls, just short of a majority. Kejriwal will govern with outside support from Congress.
"I want to see him make a difference in politics," Munshi, a security guard who goes by one name, told AFP.
Kejriwal faces no easy task in governing Delhi, one of the world's most congested, slum-ridden and polluted cities, lacking proper sanitation and reliable power and whose roads are full of bone-jolting potholes.
But "he has captured the anger everyone feels against corruption -- he is one of us", prominent commentator Suhel Seth told NDTV.