Secretary of State John Kerry presided over the raising of the U.S. flag at the Havana embassy for the first time in 54 years on Friday, Anadolu Agency reported.
"We are gathered here because our leaders made a courageous decision to stop being prisoners of history," Kerry told a crowd at the embassy, mixing Spanish into his remarks.
"My friends, it doesn't take a GPS to realize that the road of mutual isolation and estrangement that the United States and Cuba were traveling is not the right one and that the time has come for us to move in a more promising direction," he added.
The three marines who lowered America's flag in 1961 - Larry Morris, Jim Tracy and Mike East - were present to see it re-raised, fulfilling a half-century old pledge.
The ceremonial opening of the embassy marks the culmination of a diplomatic detente between Cuba and the U.S. that was announced last December by President Barack Obama and President Raul Castro.
Thousands of Cubans gathered outside of the embassy, some holding American and Cuban flags together as they celebrated the historic occasion.
The embassy has been open since July 20, when full diplomatic relations were restored, but Kerry has been unable to travel to the Caribbean island nation until now.
Despite the boost in relations, several obstacles remain between the Cold War foes, including Cuba's demand that Washington lift its decades-old embargo. Obama has loosened the trade embargo through a series of executive actions but Congress will have to act to fully lift the trade barrier.
The administration will also need lawmakers' consent to name a new ambassador to Havana. Currently, Ambassador Jeffrey DeLaurentis is serving as chief of mission.
Both countries also have outstanding financial claims - Washington is seeking repayment for damages that were incurred when American property was seized during the revolution while Havana wants compensation for the damage caused by the U.S. embargo.
The Obama administration has continued to take issue with Cuba's human rights record and has said the resumption of relations will better allow it to make progress on the issue. However, it is unclear if the ruling Communist Party is willing to ease its grip.
"We remain convinced the people of Cuba would be best served by a genuine democracy, where people are free to choose their leaders, express their ideas, practice their faith," Kerry said.
The U.S. and Cuba severed relations in 1961, two years after Fidel Castro seized power.
Kerry will meet Cuban Foreign Minister Bruno Eduardo Rodriguez and the Roman Catholic Archbishop of Havana later on Friday before attending a reception at the chief of mission's residence, where he is expected to meet Cuban dissidents.