Ediborah Yap and Christian missionary Martin Burnham were killed during a gun battle, between the Muslim guerrillas who had held them for more than a year and Philippines soldiers.
A third hostage, Mr Burnham's wife Gracia, was shot and injured and has since returned to her hometown of Wichita, Kansas, where her husband's funeral was to be held later on Friday.
Philippines media have reported that Ms Yap turned down several chances for freedom during the last year, deciding to stay with the Burnhams who had suffered bouts of bad health.
President Gloria Arroyo visited Lamitan town, on the island of Basilan, for a wake earlier this week and declared the nurse a "heroine".
Two US special forces soldiers and two marines carried the white coffin of Ediborah Yap as hundreds of mourners packed the church in Lamitan at the service on Friday.
The nurse was kidnapped last June during a raid on the town's church and hospital.
Man-hunt
Most of the Abu Sayyaf kidnappers are still on the run in the jungles of the southern Philippines, where about 1,000 US troops have been helping train local soldiers.
The Abu Sayyaf group, which says it is fighting for a Muslim state, carried out a string of kidnappings last year. Most hostages were released for ransom, though some, including an American man, were beheaded.
The US links the group with Osama Bin Laden's al-Qaeda network but the Philippines Government regards them as simply criminals.
On Thursday Philippine Government officials said the remaining rebels had broken up into smaller groups following last week's shoot-out and have probably mixed into the Muslim population.
"This will have to be a house-to-house, community-by-community search," Defence Secretary Angelo Reyes told ANC television. "It's going to be difficult."
The military estimates that rebel numbers have slumped to less than 250 fighters from a peak of about 1,200 two years ago, largely due to battlefield losses.