The private ceremony at Al-Od public cemetery followed prayers at the Imam Turki bin Abdullah mosque where Fahd's body, draped in a brown robe, was carried by family members on a wooden stretcher.
Fahd, believed to be aged 84, died on Monday after years of ill health.
Thousands crowded in the mosque, some with tears in their eyes as the special prayer for the dead began.
The mourners, including Fahd's successor, King Abdullah, stood in rows during the prayer, raising their hands proclaiming "Allahu Akbar," meaning "God is great". A gesture which forms part of the prayer.
Afterward, Fahd's body was carried back out to an ambulance for a procession of cars to a Riyadh cemetery where the monarch, wrapped in a white shroud, will be buried in an unmarked grave, in keeping with the kingdom's austere interpretation of Islam.
Thousands of police were deployed to the capital for funeral ceremonies that presented a security challenge, with large crowds of Saudis participating alongside monarchs, presidents and other dignitaries from the Arab world and other Islamic nations.
Saudis were flocking to express their condolences and their allegiance to Abdullah, Fahd's half brother.
Abdullah took the throne after the 84-year-old Fahd's death on Monday in a smooth succession that suggested the sprawling royal family was unified in the need to show stability in the first change in the monarchy in 23 years.
State television showed well-wishers lined up at the palaces of provincial governors across the country to pledge their loyalty to Abdullah, who had been the kingdom's de facto ruler since Fahd suffered a debilitating stroke in 1995.
Saudi and pan-Arab newspapers were packed with poems and tributes to the late king and vows of loyalty to Abdullah.
Businessmen, government agencies and private individuals took out full page - or even two-page - advertisements with their condolences, with large photos of the late king.
Satellite TV stations seen across the Arab world, many of them owned by Saudi businessmen, had wall-to-wall Fahd coverage, airing the funeral live after a day of talk shows and tributes to Fahd's life.
One Saudi-owned entertainment channel, Rotana, stopped its usual fare of music videos and aired simply a picture of Fahd with Quranic readings.