Mubarak was sworn in on Tuesday by parliament speaker Fathi Serour at an emergency session held under tight security in downtown Cairo.
A 21-gun salute followed the swearing-in.
Under pressure at home and abroad, the 77-year-old Mubarak, the region's longest serving leader after Libya's Muammar al-Qadhafi, has pledged to embark on greater democratic reform.
Al-Qadhafi was among the foreign dignitaries and ambassadors who attended the ceremony along with most of the assembly's 454 deputies, including opposition candidate Ayman Nour, the official runner-up who currently is on trial on charges of forgery.
Mubarak later addressed the house, dominated by his ruling National Democratic Party, to outline the priorities of his new term, which runs to 2011.
About 3000 protesters from political groups including the pro-reform Kefaya (Enough) movement chanted slogans in central Cairo against a new mandate for Mubarak and hereditary power.
"We swear to make you leave," shouted some, as police watched on and the normally ubiquitous anti-riot units were nowhere to be seen.
Women and children take part in
a protest against Hosni Mubarak
Others pounded drums to chants of "batel, batel" (null and void), and balloons in Kefaya's yellow colours were sent rising into the air.
Under the statue of a leader of Egypt's struggle against British occupation, one of the demonstrators read out a counter oath, which was repeated by the crowd.
"We swear by God Almighty that you (Mubarak) will not bequeath [your office] and that we will never be governed by the son of Hosni and Suzanne Mubarak."
Margin of victory
Mubarak, only days short of completing 25 years in office, won 88% of the vote in the 7 September election.
However, only 23% of the 32 million registered voters took part in the election, leaving Mubarak with the support of 6.5 million voters in a country of about 72 million.
Hosni Mubarak has been in
power since 1981
In a February decree, Mubarak had asked parliament to amend the constitution to allow multi-candidate presidential elections.
The new system, which was adopted in May, replaced the yes/no referendums in which he had run unopposed four times since 1981, receiving more than 90% of the vote each time.
Nine candidates ran in the 7 September election against Mubarak, but only two of them were serious challengers.
Ayman Nour of the opposition Al-Ghad party and Numan Gumaa of the Wafd party took 7.3% and 2.8% of the vote respectively.
During the campaign, Mubarak promised to surrender some of his wide reaching powers to the cabinet and the legislature.
He also pledged to implement a package of measures to create millions of jobs, better housing and health care, and to raise wages for government employees.
Mubarak, a former air force general, came to office in 1981 after the assassination of president Anwar al-Sadat at a Cairo military parade.
The Egyptian government is due to hand in its resignation on Tuesday, but Mubarak said its dissolution was only a technicality, and that a new line-up would only emerge after November parliamentary elections.
"The government will tender its resignation after the oath-taking ceremony and I will ask it to continue its work until the formation of a new government after the legislative polls," he told the state-owned Roz al-Yusef newspaper.
Reformists close to Mubarak son
Jamal are tipped to win key posts
Many of the nine defeated candidates challenged the results, complaining of fraud and other irregularities, in protests which were backed by local non-governmental organisations which had monitored the polls.
Even the reform that led to the opening up of the presidential contest was much criticised, with many candidates barred from standing, while others refused to put anyone forward saying the outcome was a foregone conclusion.
After his victory, Mubarak insisted the pursuit of political reforms was "irrevocable", vowing "to build a modern society in a democratic country".
In a related development, newly appointed US Undersecretary for Public Diplomacy Karen Hughes, after meeting Egyptian Prime Minister Ahmed Nazif on Monday, said Mubarak made "a pledge about the lifting of emergency laws to the people of Egypt as part of the presidential campaign".
Hughes quoted Nazif as telling her: "It would take some time because it involves legal and constitutional changes, but that they have every intention to act on the reforms the president outlined during his campaign."
When the government reshuffle takes place, pro-Western reformists within the ruling National Democratic Party and headed by Mubarak's son Jamal seem likely to get some important posts.
But the idea that Jamal may himself one day succeed his father as president remains controversial, with even those uninvolved in pushing for further democratic reforms opposed to the idea of an Egyptian dynasty.