The cathedral is full, with some watching on screens erected outside.
The former Catholic archbishop of Melbourne and Sydney will be laid to rest after the requiem mass on Thursday, following his death in Rome last month aged 81.
NSW Police riot squad units are outside the cathedral to ensure a buffer zone is maintained between mourners and protesters, who are gathering in Hyde Park.
Among the hundreds of mourners were Opposition Leader Peter Dutton, former prime ministers John Howard and Tony Abbott, media personality Alan Jones and divisive politicians Mark Latham and Matt Canavan.
Prime Minister Anthony Albanese is not at the service.
NSW Premier Dominic Perrottet and Opposition Leader Chris Minns are also not present.
An 11th hour compromise was reached on Wednesday to allow a protest organised by LGBTQI group Community Action for Rainbow Rights to proceed.
Protest organisers agreed not to march on College Street directly next to the cathedral, but were allowed to gather on the other side of the road, within earshot of mourners.
Police clashed briefly with protesters as they removed a sign claimed to be unlawfully fixed to a point across the road from the cathedral.
"We're not here to cause trouble, we're here to bring attention to the abuse, that's all," protester Max Elbourne told AAP.
Theresa Guzzo, who flew from New Zealand to attend the service, told AAP she was against the presence of protesters at the funeral and felt Cardinal Pell had become a "scapegoat" for animosity towards the church.
"For me it's just inappropriate to do your protesting at the funeral where we're saying goodbye to him, no matter what your belief is," Ms Guzzo said.
She said she initially "strongly" believed allegations of child abuse against Cardinal Pell, but no longer did after he was cleared by the Federal Court and she reviewed the evidence.
Another mourner, who asked not to be named, said she understood the protesters' feelings and called for mutual respect.
"Respect has to go two ways,'' she said.
"If people are grieving then you have to honour the deep anguish and sorrow that people may be experiencing.
"But then there's a different kind of anguish and sorrow potentially on the other side of the road and so it's a difficult line to walk."
Rally organiser Kim Stern said the protesters would abide by police directions as they chanted and heard speeches by LGBTI and abortion rights activists.
"We want a strong, loud, vibrant and visible rally to oppose everything Pell stood for," he said.
Thousands of colourful ribbons attached to the cathedral's gates in memory of those who suffered sexual abuse by clergy were removed overnight.
Tensions flared briefly about 9am on Thursday when several mourners tried to remove ribbons tied to a small area of cathedral fence where the church had allowed them to be tied.
"What was meant to be an act of healing has become an act of destruction," said Loud Fence, a supporter of the ribbon movement.
Cardinal Pell's conservative stance on issues including gay marriage and abortion rights had been the subject of criticism and he faced allegations of covering up child abuse.
