Bhutto, 54, had been hoping to lead the PPP to victory in the January 8 parliamentary election, having been prime minister twice before.
Supporters arrived by tractors, buses, cars and jeeps that were parked in dusty fields surrounding the mausoleum - a vast, marble structure.
Weeping in grief and chanting slogans against figures in the pro-government political party, they formed into hundreds of rows for the funeral prayers.
Asif Ali Zardari, Bhutto's husband, accompanied the closed coffin draped with the PPP's green, red and black tricolour as it began the 7km journey by ambulance.
Bhutto was gunned down by an assassin who then blew himself up in an attack that killed a total of 16 people at the end of an election campaign rally in Rawalpindi on Thursday.
Chants of "Shame on the killer Musharraf, shame on the killer US" were heard from the crowds lining the road and standing on rooftops.
Some protesters chanted defiance: "No matter how many Bhuttos you will kill, a Bhutto will emerge from each house."
Ameen Jan, a Pakistani political analyst, told Al Jazeera that the PPP needs to find a new leader to achieve its political goals.
He said: "Once the funeral rights are over, I would imagine the PPP leadership coming together, having their internal discussions, and agreeing on ways to move forward."
|Bhutto talked to her supporters before|
the fatal attack [AFP]
"In terms of leadership contenders, there are several, including Makhdoom Amin Fahim, the vice-chairman, who, since yesterday, became the person holding the reigns."
Bhutto had returned to Pakistan from Dubai in October, ending more than eight years of self-imposed exile after reaching an understanding with Pervez Musharraf, the Pakistan president.
She survived a suicide-bomb attack during her homecoming procession in Karachi that left about 140 supporters dead.
The PPP said it would observe a 40-day period of mourning while Nawaz Sharif, another opposition leader and former prime minister, has called for a nationwide strike on Friday.
Pervez Musharraf, the Pakistan president, condemned the killing and announced three days of mourning.
Seventeen people, including three policemen, had been killed in violent protests so far, police and a provincial government minister said on Friday.
Police also said that a bomb at an election meeting in the northwest killed six people, including a candidate of a pro-Musharraf party.
A Reuters reporter travelling through Sindh said he had seen hundreds of burnt-out vehicles, and people were coming out on Friday morning and setting fire to more and trying to block roads.
Unidentified assailants shot dead a policeman in a neighbourhood of Karachi.
"Unknown people gunned down a police constable in Lyari this morning," said Fayyaz Khan, a senior police official.
Source: Al Jazeera and agencies