Security personnel forced most journalists from the print and electronic media to stay away as Dikshit's mortal remains were consigned to a crematorium powered by compressed natural gas at Nigambodh Ghat near the Yamuna river.
Family members broke down as the mass of men and women, mostly Congress supporters, raised full throated slogans of "Sheila Dikshit Amar Rahe" amid light rains.
Union Home Minister Amit Shah, Delhi Chief Minister Arvind Kejriwal, former Congress President Sonia Gandhi, her daughter and party leader Priyanka Gandhi as well as a string of other Congress veterans witnessed the last rites.
So thick was the crowds that security personnel had to push back people trying to surge ahead.
The cremation came after a large number of people, including BJP stalwart L.K. Advani and former External Affairs Minister Sushma Swaraj, paid homage to Dikshit, 81, at her residence at Nizamuddin before the body was taken to the Congress headquarters in the heart of Delhi.
Former Jammu and Kashmir Chief Minister Omar Abdullah too visited Dikshit's residence.
From there, Dikshit's final journey to Nigambodh Ghat began in a van. Her sister Rama sat with the body.
Former Prime Minister Manmohan Singh paid his tribute to Dikshit, who was also briefly the Kerala Governor, at her residence.
Madhya Pradesh Chief Minister Kamal Nath and senior leaders Ahmed Patel and Raj Babbar were among others who joined the emotionally charged crowds.
Many other Congress leaders and activities followed the van carrying Dikshit's body in cars and two-wheelers.
Congress activists explained why they had gathered at the spot.
"For over 15 years, we saw Delhi flourishing every day. The amount of greenary and infrastructure that Delhi has today is because of Dikshitji," said Jagdish Sharma, a party worker.
Added Mubeen Firoz, another Delhiite: "Every day in the morning she used to have a public meeting at her home. I remember her listening to every citizen and working hard to make their lives easy."
Dikshit was the Congress President in Delhi when she suffered cardiac arrest and died on Saturday, months ahead of Assembly elections in the national capital which is now governed by the Aam Aadmi Party (AAP).
The Delhi government has announced a two-day mourning and a state funeral for Dikshit.
Dikshit was first elected the Chief Minister of Delhi in 1998 and re-elected for two more five-year terms before the AAP washed out the Congress in the 2015 Assembly elections.
Dikshit lost her own seat to Kejriwal.
( With inputs from IANS )