Just after midnight local time, the diplomatic missions of each country became full embassies.
The Cuban flag was raised on Monday at the newly opened embassy in Washington.
US Secretary of State John Kerry is due to hold talks with his Cuban counterpart Bruno Rodriguez later in the day.
Despite the historic shift, both sides admit to lingering difficulties.
There were still "issues that we don't see eye to eye on", a US state department spokesman said.
A flag will not be raised at the American Embassy in Havana until Mr Kerry pays a visit there on 14 August.