Michelle Bachelet pledged to make Chile "different and fairer" after being sworn in for her second term as president in a ceremony rich with symbolism.
But the inauguration was notable for the absence of Nicolas Maduro, the president of Venezuela. Maduro has been due to arrive in Santiago but failed to show up as the crisis widened in his homeland.
At least 22 people have been killed in Venezuela since violent protests against the government erupted last month, including two on Monday night.
Bachelet, a socialist who has so far said little about the situation in Venezuela, took over on Tuesday from Sebastian Pinera, a billionaire businessman who ruled Chile for the past four years.
She becomes the first democratically elected Chilean head of state since 1952 to return to the presidential palace for a second term, having already made history in 2006 as Chile's first female president.
In an emotional ceremony in the Congress building in the port city of Valparaiso, Isabel Allende, the first female head of the Chilean Senate, placed the red, white and blue presidential sash around Bachelet's neck. It was the first time that one woman had passed the sash to another.
The two have a shared history, linked to the military coup of 1973 that brought General Augusto Pinochet to power. Allende is the daughter of Salvador Allende, the Socialist president who was deposed by Pinochet and who committed suicide on the day of the coup, while Bachelet's father was an air force officer who was tortured by the Pinochet regime and died in custody.
"I want to pay special homage to my father and to all those who gave their lives in the fight to recover democracy," an emotional Allende said as she was sworn in as head of the upper house. "I know he would be proud to see his daughter in this role."
A dozen Latin American leaders were at the ceremony including Brazil's Dilma Rousseff and the leaders of Chile's three closest neighbours: Argentina, Bolivia and Peru. Vice-President Joe Biden represented the United States.
With Maduro absent, Venezuela's representative was its foreign minister, Elias Jaua.
Several right-wing members of the Chilean parliament wore lapel badges during the event that read "S.O.S. Venezuela" in solidarity with that country's opposition. Hundreds of Venezuelans living in Chile have staged protests recently to voice anger at the Maduro government.
The region's foreign ministers were due to meet in Chile yesterday to discuss the Venezuelan crisis, which has prompted concern across Latin America.
"We believe that Chile can be different and fairer," Bachelet told supporters. "I hope that on the day I leave this place, you will feel that your lives have changed for the better.
In yet another highly symbolic act, Claudia Pascual, 41, was sworn in as Chile's first Communist minister since the days of Salvador Allende. The Communists have made significant ground recently and won six of the 120 congressional seats in November's election, tripling their previous representation.
Pascual, a social anthropologist, is Bachelet's minister for women, and one of nine women in the new cabinet.
This second Bachelet government promises to be more radical than her first.
She has vowed to overhaul the country's education system, which relies heavily on household contributions to top up meagre state funding, and turn it into a fully state-funded system within the next six years, funding her plan with a corporate tax rise.