The beatification is the last formal step to sainthood for the world-famous nun, who died six years ago at age 87.
Thousands of pilgrims had also been paying tribute to Mother Teresa in Calcutta, India, where the nun spent more than 60 years attending to the sick and dying, the BBC reported.
The 83-year-old pope so admired Mother Teresa that he put her on the fast track to sainthood.
"Brothers and sisters, even in our days God inspires new models of sainthood," Pope John Paul II told the crowd.
Among those attending the ceremony was Monica Besra, a young Indian woman who claimed in 1998 that her large stomach tumor vanished after praying to Mother Teresa.
The claim was formally recognized as a miracle by the Vatican last year, paving the way for Mother Teresa's beatification.
Mother Teresa won the Nobel Peace Prize in 1979 for her decades of service to the sick and destitute.
Her Missionaries of Charity order, begun in 1950 with only 12 nuns, has grown to 4,500 sisters in 133 countries. They run homes, schools and hospices for the poor and dying.