Celebrations kicked off Tuesday night at the Mercaz Harav yeshiva in Jerusalem, attended by rabbis and government ministers and parliamentarians.
"Jerusalem is the spirit of the nation and spirit cannot be divided," Israel Radio quoted Israeli Defense Minister Moshe Ya'alon as saying at the ceremony.
The holiday is celebrated primarily by Israel's religious community.
Other events planned for Wednesday included the central ceremony at Ammunition Hill in Jerusalem, the scene of intense battles during the 1967 war, and the traditional Flag Dance procession, which ends at the Western Wall.
Members of the Ethiopian community also mark the day to commemorate the Ethiopian Jews who died on their way to Israel, the Ministry of Tourism website said.
Thousands of Israel police and border police were deployed in the capital to monitor the closing of main roads for events and enhance security, Israel Radio said.
To mark Jerusalem Day, the Central Bureau of Statistics released figures showing Jerusalem had a population of about 804,400 people at the end of 2011 and is the largest city in the country. There are about 499,400 Jews residing in the capital, 281,100 Muslims, 14,700 Christians, 200 Druze and an additional 9,000 residents not classified by religion, the bureau said.