The two agreed to share power last year to end political deadlock, but their mistrust and continued disagreements have raised questions over how well they can work together to rescue the ruined southern African country.
Tsvangirai, 56, took the oath of office administered by Mugabe at a ceremony in Harare.
The opposition leader won a first round presidential poll against Mugabe last year but boycotted a subsequent run-off over electoral violence.
Implementation of the power-sharing deal only came after increased pressure from southern African countries, fearing a total meltdown in once-prosperous Zimbabwe.
Mugabe, in power since independence from Britain in 1980, is one of Africa’s craftiest political operators. Tsvangirai is a former trade union leader known for fiery speeches, but his leadership skills in government remain untested.
Zimbabweans hope the new government will bring policies to revive a country suffering hyper-inflation, unemployment above 90 percent, food shortages and a cholera epidemic that has killed nearly 3,500 people.