Rudd took the oath of office before Governor-General Michael Jeffrey in a brief ceremony in Canberra, while his deputy Julia Gillard, swore an affirmation, media reports said in Melbourne.
The ceremony was attended by Rudd's wife Therese Rein, and his children. Gillard's partner, Tim Mathieson and her sister Alison looked on.
The swearing of the two leaders is to be followed by the swearing in of the rest of the ministry.
Rudd will hold a full ministry meeting this afternoon, as the Government prepares for a vigorous start to its work.
The new Prime Minister wants to get preparation under way in the key areas of industrial relations and education before Christmas.
Interim legislation on industrial relations will be introduced as soon as the new Parliament commences in early February.
Later this week, the cabinet will meet in Rudd's home town of Brisbane.
He has promised to take the cabinet regularly out of Canberra. Earlier, Prime Minister Rudd described it as just another day's work.
Rudd, who led Labour to its first federal electoral victory in 11-and-a-half years, today said it was an important day. "Another day's work ahead," Rudd said when asked if he
had butterflies.