Australian rock groups INXS and Men at Work led the party in the US$450m stadium after an exhibition international football match.
Some of the world's top players lined up in the Fifa All Star team against the Australian national side, nicknamed the Socceroos.
About 88,000 people - a record for a football match in Australia - watched the game, which the Socceroos won 3-2.
There had been a movement in Sydney to keep the opening until next year's Olympic Games.
But in the end officials could not wait to unveil the state-of-the-art stadium.
The 110,000-capacity stadium has been used for several rugby league matches, but the Australia vs Fifa match was the first international contest in the arena.
Remarkably, some estimates put the value of the combined footballing talent, which included Italy's Christian Vieri, the world's most expensive player, higher than the cost of the stadium.
World team second best
But the World XI could not stop the Socceroos winning the exhibition match with goals from Ned Zelic, Brett Emerton and an own goal by Javier Margas.
Before the game, a 90-minute ceremony featured a parade of some of Australia's sporting greats and the INXS concert, with Terence Trent D'Arby singing.
It was one of the group's first public outings since the death two years ago of lead singer Michael Hutchence.
Stadium Australia will host the opening and closing ceremonies, and the athletics and football competitions at the 2000 Olympics.
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