The 72-year-old takes charge of Africa's most populous nation, which is facing crises on several fronts, from severe economic turmoil to Boko Haram's still-raging Islamist insurgency.
The inauguration, before visiting heads of state and dignitaries, comes 32 years after the former army general seized power in a military coup. He was ousted after 20 months in office.
Buhari has described himself as a "converted democrat" and vowed to lead an administration committed to the needs of Nigeria's 173 million people by cracking down on the scourge of corruption.
But analysts said his first task may be managing the expectations of a nation that has struggled for decades with woeful infrastructure, crippling unemployment and widespread unrest.
Beyond the challenges facing the new government, the historic importance of Friday's ceremony should not be overlooked, said Clement Nwankwo, an activist who fought against military rule.
"The handover... represents a significant milestone in the democratic development of Nigeria," Nwankwo, who now heads the Policy and Legal Advocacy Center, told AFP.
Civilian rule was restored in 1999 but the Peoples Democratic Party (PDP) has held power at the federal level for the last 16 years, at times appearing intent on staying on at any cost.
Buhari's win over outgoing president Goodluck Jonathan in March 28 polls and the subsequent inauguration of a long-time opposition leader were not expected, added Nwankwo.
"I would say I am pleasantly surprised. Given the history of Nigeria's elections, it was always going to be a surprise to see an incumbent lose."
Heads of state, including South Africa's Jacob Zuma, and Western dignitaries such as US Secretary of State John Kerry will attend Friday's inauguration, which starts at 9:00 am (0800 GMT).
Corruption, economic crisis
Nigeria is Africa's top oil producer and leading economy, deriving more than 70% of government revenue from crude sales.
Plunging oil prices have caused a cash crunch that has left thousands of civil servants unpaid and pushed the naira currency to historic lows.
Buhari and his All Progressives Congress Party have pledged sweeping change, particularly in job creation, electricity supply and insecurity.
But with the public coffers in tatters, Buhari's ability to deliver on campaign promises may be limited in the short term.
"Given that the incoming administration will be substantially resource-constrained, we think Buhari's biggest challenge will be managing expectations," research and investment firm Renaissance Capital said.
Buhari won the support of voters largely through his tough stance against corruption. His brief tenure in the 1980s is remembered as a time when bribery and graft were forbidden.
He said his administration would have zero tolerance for corruption but experts warn that maintaining his fragile coalition could involve working with some politicians who have a mixed past.
"As the APC is a coalition, there is a risk compromise may weaken the quality of appointments," including in the cabinet, Renaissance Capital said.
Buhari is from Nigeria's mainly Muslim north and enjoys massive support in the region but almost certainly would have lost without the backing of partners from the predominately Christian south, including ex-PDP heavyweights who have been linked to graft.
Victims of Boko Haram's brutal insurgency in the northeast have voiced hope that Buhari will do more than Jonathan in tackling the uprising.
Gains have been made since February in an offensive backed by neighbouring Cameroon, Chad and Niger but violence persists and sustained pressure is required to defeat the resilient Islamists.
Containing unrest in the southern, oil-producing Niger Delta may prove to be just as tough a problem.
The delta is Jonathan's home region and some former militants who fought for a fairer share of oil revenues in the 2000s had threatened to resume violence if their native son was defeated.
A 2009 government amnesty programme that saw oil rebels swap guns for regular cash stipends has significantly reduced unrest but the scheme expires this year.
While that money may be better spent on education and infrastructure, cancelling the amnesty programme will have risks for the new president.
"Discontinuation... bears the risk of plunging Nigeria's oil-producing region back into an armed insurgency, with fatal consequences for the oil and gas industry and government revenues," said Malte Liewerscheidt, senior Africa analyst at the Verisk Maplecroft consultancy group.