"I will well and truly serve Zimbabwe in the office of prime minister," Tsvangirai said as he took his oath of office from Mugabe under a white tent in the lawn of the presidential mansion.
Former South African president Thabo Mbeki, who mediated in the power-sharing talks, attended the ceremony along with Mozambican President Armando Guebuza and Swazi King Mswati III.
After the swearing-in, Tsvangirai planned to address his supporters in a stadium, with a speech that will celebrate but also need to reassure.
Tsvangirai’s decision to bring his Movement for Democratic Change (MDC) into the unity government has raised doubts overseas and sparked fierce debate within his own party.
The former trade union leader is all too aware of the concerns that he, like earlier Mugabe rivals, could be swallowed into the long-ruling Zanu-PF party without changing the course of a nation that is by any measure disintegrating.
‘Let history be the judge’
"The sceptics must understand why we have done this and what is the best course of action to address the questions and challenges of transition in this political environment," Tsvangirai said on the eve of his swearing-in.
"We have made this decision and we made it without being forced. We want our colleagues in the country and outside the country to approach it from that perspective. It is our decision. Let history be the judge of this decision," he said.
His swearing-in will cap nearly a year of turmoil that began last March, when Tsvangirai won a first-round presidential vote that was greeted with nationwide political violence, mostly against his supporters.
Hoping to end the unrest that left at least 180 dead, Tsvangirai pulled out of the run-off and left Mugabe to claim a one-sided victory denounced as a sham overseas.
South Africa brokered the unity deal, which was signed on September 15 but stalled amid protracted talks on how to divide cabinet posts and share control of the security forces.
Those concerns were finally addressed when the parties agreed to name co-ministers to home affairs, which oversees the police, and to create a new National Security Council that will allow all parties control of the security forces.
But analysts question how such an arrangement can work with the 84-year-old Mugabe, who has ruled since independence in 1980 and who just recently declared that "Zimbabwe is mine".
"Tsvangirai’s swearing-in symbolises a new era for the people of Zimbabwe," said Daniel Makina, a political analyst at the University of South Africa.
"Whether the inclusive government will be a success or not is another matter."
How effective will Tsvangirai be?
The challenges facing Zimbabwe would daunt even the most experienced of administrators.
More than half the population needs emergency food aid. Unemployment is at 94%. Only 20% of children go to school because teachers haven’t been paid and exams not graded.
Public hospitals are closed, with doctors and nurses unpaid, exacerbating a health crisis in a nation where 1.3 million people have HIV and cholera has hit nearly 70 000 people since August, killing about 3 400.
"We only hope that his appointment will stem the tide of economic and humanitarian decline. But the lingering question is how effective are his powers going to be," Makina said of Tsvangirai.