Turkey came third in the tournament after beating co-hosts South Korea 3-2 Saturday, an achievement that exceeded most Turkish expectations.
They have given us a lot of happiness, but I cannot helpthinking that we could have won the cup
Striker Hakan Sukur scored in the opening 11 seconds of that game to set a World Cup record for the fastest goal.
Earlier, Turkish fighter jets escorted a plane carrying the team over the country's airspace.
Dressed in shorts and jerseys, the players descended the steps of the plane and climbed on an open-top bus to parade through the city.
After a drive that lasted nearly three hours, the squad joined a massive street party at Istanbul's largest square, Taksim.
Fireworks and balloons were released as soon as the bus approached.
The players sang and danced on stage with Turkey's best-known pop star Tarkan as more than 50,000 watched.
The team's success has been a welcome distraction from the country's gloomy economic crisis and political uncertainty.
The economy shrank 9.4 percent last year, leading to massive layoffs.
"We're very happy," said Tolga Kadioglu, who was celebrating at Taksim square.
"But it won't last. ... Our problems will return in the morning."
As three large TV screens at Taksim showed replays of the squad's best goals, some expressed disappointment that the team had not done better.
"They have given us a lot of happiness, but I cannot help thinking that we could have won the cup," student Ceyda Sipahioglu said.