Pakistan Prime Minister Nawaz Sharif, Afghanistan President Hamid Karzai and Sri Lankan President Mahinda Rajapaksa were among some 4,000 guests who watched Mr Modi and his new ministers take the oath of office and secrecy - a historic first for any prime ministerial inauguration.
The invitations to South Asian leaders showed Mr Modi's determination to be a big player on the global stage after years of international isolation over the 2002 riots in Gujarat, the state he ruled till now.
After the ceremony, Mr Sharif, who had called it a "great moment and great opportunity", was the first to shake hands with the new Prime Minister.
All South Asian leaders posed with the Prime Minister and President Pranab Mukherjee for an unprecedented photograph on the steps of the presidential palace.
Mr Modi's invitation to the Pakistani and Lankan leaders did not go unopposed. Ally Shiv Sena's chief Uddhav Thackeray said he was attending the oath ceremony because he believed in Mr Modi's leadership, but asserted that "Pakistan can't be trusted."
Another BJP ally MDMK protested against the Lankan President's visit and the party's chief Vaiko was detained.
In a gesture of goodwill, Pakistan and Sri Lanka have released hundreds of Indian fishermen jailed for straying into their waters.
Mr Modi's first day as Prime Minister will be dedicated to a series of bilateral meetings but the world's attention will be on his first interaction with his Pakistani counterpart.
"Both governments have a strong mandate. This could help in turning a new page in our relations," Mr Sharif told NDTV in an exclusive interview. (read: 'Intend Picking up from Where Vajpayee and I left off')
"We should remove fears, mistrust and misgivings about each other. Both countries should rid the region of instability and security that has plagued us for decades," he said. (Watch video)
Ties between the nuclear neighbours have been frosty since the 2008 Mumbai terror attack. Hostilities escalated last year after a series of ceasefire violations and the killing of Indian soldiers by Pakistani troops.
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