Morales' vice president gave him a new sash with an Indian emblem, the Latin American Herald Tribune reported. The ceremony was attended by presidents Hugo Chavez of Venezuela, Michelle Bachelet of Chile, Rafael Correa of Ecuador and Fernando Lugo of Paraguay, along with Crown Prince Felipe of Spain.
A number of other South American governments sent officials.
Morales, the first president from Bolivia's indigenous majority, won the presidency in 2005 with 54 percent of the vote. One of his accomplishments was a new constitution that required him to run for another five-year term in 2009.
"Now we have consolidated democracy so that it is not only representative but also participative," Morales said as he began a two-hour speech.
Morales spent much of his time during the speech giving figures about gains in health, education and jobs. In his second term, he promised to extend good roads and rail lines to all parts of the country and to provide basic services like electricity and clean water for all Bolivians.