Abdelbaset Ali Mohmed al-Megrahi, who has terminal cancer, left Glasgow airport in a chartered jet bound for Tripoli.
He had been driven from HMP Greenock in a police convoy after being released on compassionate grounds by Scottish Justice Secretary Kenny MacAskill.
The Afriqiyah Airways Airbus plane with Megrahi on board took off from Glasgow airport at 3.26pm.
Megrahi, 57, was driven to the airport from HMP Greenock in a white van escorted by three police cars, another van and five motorcycles.
He was driven straight on to the tarmac where the jet was waiting to take him home.
Dressed in a white track-suit and wearing a baseball cap and a white scarf to hide his face, he appeared frail but was able to walk up the steps of the plane alone, using a stick.
Megrahi has served eight years of a life sentence for murdering 270 people when a Pan Am plane was blown up over Lockerbie in 1988.
But in a move that has caused outrage in the United States, Mr MacAskill said Megrahi would be released early from prison today.
He said Megrahi "now faces a sentence imposed by a higher power".
Mr MacAskill said: "It is one that no court, in any jurisdiction, in any land, could revoke or overrule. It is terminal, final and irrevocable. He is going to die."
In a statement that lasted more than 20 minutes, Mr MacAskill said Megrahi had shown no compassion to his victims, but added: "That alone is not a reason for us to deny compassion to him and his family in his final days."
The Justice Secretary said: "I am conscious there are deeply held feelings and that many will disagree whatever my decision. However, a decision has to be made.
"Scotland will forever remember the crime that has been perpetrated against our people and those from many other lands, the pain and suffering will remain forever.
"Some hurt can never heal, some scars can never fade. Those who have been bereaved cannot be expected to forget, let alone forgive. Their pain runs deep and the wounds remain."
He rejected a separate application by Megrahi to serve the rest of his sentence in Libya.
The decision was met with anger in the US from both the White House and from relatives of victims.
In a statement, Robert Gibbs, press secretary to the White House, said: "The United States deeply regrets the decision by the Scottish Executive to release Abdelbaset Mohmed Al Megrahi.
"Megrahi was convicted and sentenced to life in prison for his role in the bombing of Pan Am Flight 103, which blew up over Scotland on December 21 1988.
"As we have expressed repeatedly to officials of the Government of the United Kingdom and to Scottish authorities, we continue to believe that Megrahi should serve out his sentence in Scotland.
"On this day, we extend our deepest sympathies to the families who live every day with the loss of their loved ones. We recognise the effects of such a loss weigh upon a family forever."
The families of American victims reacted angrily to the news.
Kara Weipz, of Mount Laurel, New Jersey, lost her 20-year-old brother Richard Monetti in the terrorist attack.
She said: "I don't understand how the Scots can show compassion. It is an utter insult and utterly disgusting.
"It is horrible. I don't show compassion for someone who showed no remorse."
In the build-up to his decision, Mr MacAskill came under intense US pressure to keep Megrahi behind bars.
US secretary of state Hillary Clinton said it was "absolutely wrong" to release Megrahi, and American relatives have been fiercely critical of the reported plans.
Mr MacAskill made the announcement at the Scottish Government's ministerial headquarters in Edinburgh.
He had been considering two applications - one for Megrahi to be moved from Greenock prison to Libya under a prisoner transfer agreement, and the separate application for him to be released early on compassionate grounds.
Megrahi dropped his appeal against conviction on Tuesday.
Over the years there have been many calls for a full public inquiry, which might disclose evidence which did not come out during the trial.
Mr MacAskill said the Scottish Government "would be happy" to co-operate if an inquiry into the atrocity went ahead.
The Afriqiyah Airways Airbus plane taking Megrahi back to Libya had touched down at Glasgow airport just before 2.30pm.
It is understood it had taken off from Stansted, near London.
At almost the exact time as it arrived, a police convoy arrived at Greenock prison to collect Megrahi.
Ten minutes later he set off on the 16-mile trip to the airport.
As the white van carrying Megrahi left, a crowd of more than 80 people gathered, some shouting and some cheering.
Norma Gallacher, 62, from Falkirk said: "The people of Scotland will never forget Lockerbie but we are a compassionate people. In my opinion, Kenny MacAskill did the right thing.
"The difference between Mr Megrahi dying in Greenock and dying in Libya is that it will cost us less here if he dies in Libya.
"I thought it was a very good speech."
A man covering his mouth and part of his nose with a scarf held a cardboard sign with the words "Remember the 270 dead. Send Megrahi home like them... in a box" as the convoy arrived and left the prison.
Thomas Gorman, 58, from Port Glasgow, said: "He (Megrahi) should not be let out. He should die in there and send his body back to Libya the way he did with other people."
When asked how he thought people would react to the news of Megrahi's release, Mr Gorman said: "The biggest majority don't want him out. He did the crime, he should die in there."
Helen Robertson, who lives near to Greenock prison, said: "I have very mixed feelings about what's happening. It's sad that Mr Megrahi has a dreadful disease that he's dying from but also I'm sad for the people who died almost 21 years ago.
"He's going to have a terrible death and so did those 270 people and that's what people should never forget."
The convoy arrived at the airport at around 3.05pm.
US attorney general Eric Holder said: "We are extremely disappointed with the Scottish Executive's decision to release Abdelbaset Ali Mohmed al-Megrahi.
"The interests of justice have not been served by this decision. There is simply no justification for releasing this convicted terrorist whose actions took the lives of 270 individuals, including 189 Americans.
"Megrahi did not show and has not shown compassion for innocent human life, and as we communicated to the Scottish authorities and the UK government, it continues to be our position that he should have been required to serve the entire sentence handed down for his crimes."
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