The train pulled into the station of Attari, near the border with Pakistan, with people hanging from the engine.
Hordes of photographers rushed onto the railway platform to greet the passengers who waved from aboard the train amid cheers from gathered crowds, who also garlanded the train officials.
The Samjhota (Concord) Express left Lahore's historic railway station early in the morning carrying 65 passengers on board 10 coaches.
The Samjhota Express was to return from Attari to Lahore at 2:30 pm ((0900 GMT) with 242 Indian passengers on board, most of them off to meet relatives who stayed in Pakistan after Partition at the time of independence from British rule in 1947.
"The people of both the countries, their culture and language are the same. I just fail to understand why the politicains fight on petty issues," said Abd al-Salim, a passenger from the north-western Indian state of Rajasthan.
"The people of both the countries, their culture and language are the same. I just fail to understand why the politicains fight on petty issues"
An Indian passenger
Another passenger, Sagina Khatun and her sister Parveen, told the Hindustan Times newspaper that they were going to Pakistan after five years to attend the marriage of a cousin.
Saima, a Pakistani national who had come to attend her sister-in-law's wedding in the southern Indian city of Hyderabad, said she was glad the train had resumed as it was cheaper than other modes of travel.
"I will return to India in July by the Samjhota Express," she
The revival of rail links is the latest move between the fractious South Asian giants to ease long-standing tensions after they edged close to a fourth war in 2002.
India severed all transport links with Pakistan after an attack on its parliament in December 2001, which it blamed on Pakistan-backed militants.
Relations began to improve after Vajpayee offered a "hand of friendship" to Pakistan on 18 April, and the two nations resumed a cross-border bus service in July and revived aviation links on New Year's Day.
Since then at a regional summit last week, India and Pakistan decided to restart long-stalled dialogue in February in an attempt to resolve their dispute over Kashmir.