It took three-and-a-half years to build, using Chinese track-laying technology.
The line is supposed to eventually connect South Sudan, Democratic Republic of Congo and Burundi with Mombasa.
It is the country's first new major railway in more than a century.
The journey from Mombasa to Nairobi by train will now take four-and-a-half hours, compared to nine hours by bus or 12 hours on the previous railway.
The tickets work out cheaper than buses.
An economy class ticket will cost 900 Kenyan shillings ($9; £7), while a business class ticket will be 3,000 Kenyan shillings. The nearest equivalent bus is ticket is an extra 400 shillings.
"A history that was first started 122 years ago when the British, who had colonised this nation, kicked off the train to nowhere... it was then dubbed the 'Lunatic Express'."
"Today... despite again a lot of criticism we now celebrate not the 'Lunatic Express' but the Madaraka [named after the day Kenya's attained internal self-rule) Express that would begin to reshape the story of Kenya for the next 100 years."
The cost of the project has been criticised by opposition parties, who say it is too expensive and the economic returns exaggerated.
They have also accused President Kenyatta's administration of unchecked borrowing from China.
The government says that it needs to invest in infrastructure to attract foreign investment.
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