In addition to regular prayer sessions, the Lawtey Correctional Institution will offer religious studies, choir practice, religious
counselling and other spiritual activities seven days a week.
Participation is voluntary and inmates are free to transfer out.
Bush lauded the inmates from 26 faiths for committing themselves "to a higher authority."
"This is not just fluffy policy, this is serious policy," he told the crowd on Wednesday. "For the people who are sceptical about this initiative, I am proud that Florida is the home to the first faith-based prison in the United States."
Bush said it was the first of its kind, meaning a prison focused on encouraging the spirituality of inmates of all faiths.
Other prisons have used religious thinking to try to turn inmates away from crime. From 1829 to 1913, for instance, the Eastern State Penitentiary in Philadelphia used a Quaker-inspired system in which prisoners were isolated from each other and made to perform labour in hopes of encouraging spiritual reflection and change.
"For the people who are sceptical about this initiative, I am proud that Florida is the home to the first faith-based prison in the United States."
Governor Jeb Bush
Inmates at the Lawtey prison in north Florida were told more than a month ago it would be converted to a faith-based institution, prompting 111 to transfer out. But their beds were quickly filled with volunteers from other prisons.
"We've developed a cocoon, a place where they can practise their faith and not have the severe negative pressures and interactions that naturally take place in some of our institutions," said Correction Secretary James Crosby Jr.
Officials hope the programme will lead to fewer repeat offenders.
The governor said about 38% of Florida's released inmates would be back in prison at some point.
"Wouldn't it be nice if we could figure out a way to lower that 38 percent closer to zero percent, for your family and your community?" Bush asked to rousing applause.
Howard Simon, executive director of the American Civil Liberties Union of Florida, called the prison part of "a major constitutional showdown" over government funding for religious programmes.
He said before filing suit, the ACLU was waiting for the results of a test case challenging a state voucher programme that gave students taxpayer money to attend religious schools.
During the dedication ceremony, many prisoners jumped to their feet and clapped in rhythm, as a gospel singer sang "His Eye Is on the Sparrow." Some shouted "Sing it!" and "Amen!"
Later, Bush told the inmates: "I can't think of a better place to reflect on the awesome love of our lord Jesus than to be here at Lawtey Correctional. God bless you."