The flame was lit by actress Maria Nafpliotou in front of the Temple of Hera in a theatrical ceremony, which sees the start of a five-month torch relay ending with the Olympic Games opening ceremony on August 8.
During the ceremony the Greek actress, who played the role of a high priestess, held up the torch and with the help of the sun rays lit the Olympic flame.
After being lit, the torch was handed to the first torchbearer, Greek Olympic taekwondo silver medalist Alexandros Nikolaidis, and later to China's Luo Xuejuan, an Olympic gold medalist.
China has budgeted $2 billion for the summer games, which it sees as a major opportunity to boost its image of success and prosperity abroad.
However, the ceremony was briefly interrupted as pro-Tibet demonstrators attempted to break through a police barricade to protest the recent government crackdown against anti-Chinese protesters in Tibet that allegedly left 100 civilians dead. China's government puts the death toll at 19.
The pro-independence group Free Tibet has demanded that the mountainous province, which China claims as its own, be removed from the route of the torch relay, which is set to pass over Mount Everest in early May.
The International Olympic Committee (IOC) has refused to be drawn into the debate over Tibet, and more generally over alleged human rights violations into China.
Olympic Committee chief Jacques Rogge said in a statement last Sunday: "The IOC has already expressed the hope that this conflict should be resolved peacefully as soon as possible. Violence for whatever reason is contrary to the Olympic values and spirit."
The relay tour will begin in China on April 1, and will cover 137,000 kilometers (85,000 miles) over 130 days before arriving at the National Stadium in Beijing on August 8 for the Olympic opening ceremony.
