The Queen and the Duke of Edinburgh and the Prince of Wales have joined friends and family of the 32 Britons who died in the blast on 12 October.
Prince Charles will represent the royal family by doing a reading.
About 180 people died in the terrorist attack on a crowded nightclub on the holiday island.
But most of the bodies have yet to be brought home and 20 Britons are still unaccounted for.
One of the first to arrive at the cathedral was Australian pop star Jason Donovan.
He said his "small nation" would feel the loss like 11 September in America.
"But we've got a fighting spirit and the country will keep moving forward," he said.
He added he would also be remembering the "giving and beautiful" people of Bali whose lives had been "rocked" by the attack.
Patricia Hewitt, Trade and Industry Secretary, and Baroness Symons, trade minister, will represent the government.
Up to 2,000 people will be inside the cathedral for special prayers.
Several thousand more are expected to gather outside to listen to the service relayed on loudspeakers.
The event has been organised by the Australian High Commission to pay tribute to all those killed or missing in the attack.
DNA testing delays
One of those attending the service is Andy Bowler, who lost his brother Neil in the bombings.
However, he is angry about the bureaucracy which is delaying the repatriation of bodies.
Speaking on BBC Radio 4's Today programme, Mr Bowler said: "My brother was visually identified when it happened, but they're now insisting bodies are identified with DNA.
"We are being told by the Foreign Office that they can only be identified by DNA or dental records.
"This is why it's taking so long.
"The DNA is being sent to Australia, but it's still taking three or four weeks and we are now coming up to two weeks since it happened."
Assets frozen
The Australian High Commissioner in Britain, Michael L'Estrange, and The Archbishop of Canterbury, Dr George Carey, will both address the memorial service.
The UK Government on Thursday said it would freeze all assets held by an Islamic group suspected of involvement in the bomb.
Jemaah Islamiah (JI) is also to be added to a list of banned terrorist groups in the UK.
The US has already frozen JI assets after listing it as a terrorist group.