In a service at Dublin Castle filled with prayer and song, the veteran politician said it was "time to turn to an older wisdom" in rebuilding Ireland's battered economy.
He called for the creation of a republic founded on community spirit instead of individual materialism.
During his seven-year term in the largely ceremonial role, he pledged to help repair the damage caused by Ireland's financial crisis which led the EU member state to seek an international bailout last November.
Dignitaries filled Dublin Castle's splendid Saint Patrick's Hall for the showpiece ceremony, which culminated in Higgins signing the declaration of office and receiving the seal.
His two immediate predecessors, Mary Robinson and the outgoing Mary McAleese, sat behind him, with Prime Minister Enda Kenny to his right.
In a speech alternating between English and Irish, Higgins said his would be a presidency of "transformation."
Ireland needed to close a chapter "that has left us fragile as an economy, but most of all wounded as a society, with unacceptable levels of unemployment, mortgage insecurity, collapsing property values and many broken expectations," he said.
The republic must turn the corner on "that which has failed, that which was not the best version of ourselves as a people, and open a new chapter based on a different version of our Irishness."
Higgins said "egotism based on purely material considerations" had been the source of Ireland's economic and social woes.
"Now it is time to turn to an older wisdom that, while respecting material comfort and security as a basic right of all, also recognises that many of the most valuable things in life cannot be measured.
"We Irish are a creative, resourceful, talented and warm people, with a firm sense of common decency and justice," he said, vowing to build "an Ireland we all feel part of, an Ireland we all feel proud of".
Higgins set out his vision for a rejuvenated Ireland against a backdrop of gradual recovery from a deep recession -- growth is expected to be 1.0 percent this year, rising to 1.6 percent in 2012, according to official data.
Walking slowly but purposefully, Higgins is still recovering from a serious knee injury suffered during a fact-finding mission in Colombia last year.
Higgins became the ninth president of Ireland after repeating the declaration of office read aloud in Irish by Chief Justice Susan Denham and signing it.
Kenny called Higgins "a noble man of quiet virtue".
"His authenticity as poet, philosopher, patriot and politician... will resonate across this country and around the world", including with the 70 million-strong Irish diaspora, he said.
He also paid tribute to McAleese, whose 14 years in office saw the cementing of the Northern Irish peace process and reconciliation with Britain, culminating in Queen Elizabeth II's historic visit in May.
After the ceremony, Higgins was whisked away to settle in at the Aras an Uachtarain, the president's residence in Dublin's Phoenix Park.
A veteran politician in the Labour Party, the junior governing coalition partners, Higgins was the clear winner of the October 27 election, taking 39.6 percent of first-preference votes.