After being driven by specially-arranged buses to the city centre compound - now a Revolutionary Guards base - the crowd on Monday waved anti-US banners and chanted "Death to America", "Death to Britain" and "Death to the Zionists".
Other slogans included "Martyrdom is our dream, this is the response to our enemies", while US President George Bush was branded as "bloodthirsty".
US and Israeli flags and effigies of Uncle Sam were also set
ablaze in the festivities, and some were also laid out on the road so drivers could enjoy taking a spin over the Stars and Stripes.
On 4 November 1979 in the wake of Iran's revolution, a group of students stormed the US embassy in Tehran and detained its staff there for 444 days.
The embassy crisis led to the suspension of diplomatic ties between Washington and Tehran.
Guest of honour for the anniversary occasion was Sohail Karimi, one of two journalists working for state-run Iranian television who was freed on Monday after being held by US troops in Iraq for four months.
Freed journalist Sohail Karimi is
guest of honour at the occasion
Karimi repeated allegations - denied by the occupation forces - that they were tortured while custody.
The pair had been arrested after being spotted filming a US army base southeast of Baghdad.
"During the first days of our detention, we were physically
tortured by the American forces who wanted to show their hatred for the Iranian people," he told the crowd.
"They wanted to avenge the cries of 'Death to America' that you have shouted over the past 25 years," he stressed, prompting even more repeated chanting of "Death to America".
Revival of Islam
Ali Akbar Nategh Nouri, a former head of parliament and now a
close aide to supreme leader Ayat Allah Ali Khamenei, was also on the podium to rally the faithful.
"After the collapse of the Soviet Union, the United States wanted to impose a unipolar world but did not count on the Islamic republic being at the heart of a revival of Islam," he said.
"The Americans are afraid of us and so they declare war on us," he added.
Iranian women join in the crowd
outside former embassy
He said Iran was also a key inspiration for Palestinian bombers or "martyrdom seekers".
But the United States, he boasted, did not have the courage to attack Iran militarily.
"And despite all the sanctions, they have seen we have
tested the Shahab-3 (medium range ballistic missile) and we have nuclear technology," he warned.
Iran has been accused by the United States of using a nuclear power project as a cover for weapons development - a charge Tehran denies.