"Fatherland of mine, I've been your soldier and that makes me happy," Pinochet said, his voice breaking with emotion during his farewell speech. He made no reference to the controversial post he was expected to take as senator for life.
The ceremony, in which General Ricardo Izurieta replaces Pinochet, began with some tension after President Eduardo Frei was booed by relatives of military men in the crowd. Some chanted "Pinochet, Pinochet".
Pinochet, 82, was honoured by a parade at the Military Academy by 3,000 soldiers and 2,000 guests led by President Frei.
Although General Pinochet delivered a mostly military speech, he did refer to the bloody coup of 1973 in which he toppled President Salvador Allende. The military had been forced to act because the nation "was in the brink of self destruction," he said. But, he added, "I do not want to look back, because that anchors the country in the past".
When General Pinochet went to the presidential palace on Monday night for a formal farewell, police had to use water cannon to scatter a small group of demonstrators protesting at his senate plans.
The clash reflected the growing opposition to Pinochet assuming a senate seat, a position he receives as former president under the constitution he himself wrote. His constitution also made him commander of the military after he stepped down from the presidency in 1990.
Protests were expected to continue today, when General Pinochet is sworn in to Congress. Pinochet's critics say a man who shut down Congress and persecuted lawmakers has no place in the legislature.
Gen Pinochet's regime was accused of massive human-rights abuses, including more than 3,000 political killings, according to official figures. Some lawmakers planned to begin impeachment proceedings against Pinochet. But their effort appears doomed as the right-wing opposition, which holds a majority in the Senate, has made clear it will oppose it.