Relatives and friends gathered around the 38 caskets, including those of two small children, which were carried into the tent in pouring rain after a summer storm broke over Amatrice, the worst-hit town from the August 24 quake.
Builders worked through the night hurriedly preparing the funeral site after furious locals warned they would boycott the event when they found out that the authorities planned to hold it in the city of Rieti, more than 60 km away.
The bodies were originally taken to Rieti and officials said it would be easier to hold a mass funeral there rather than in the devastated Amatrice, but Prime Minister Matteo Renzi ordered a change of plan in the face of the local anger.
In the centre of Amatrice, which was voted last year one Italy's most beautiful, crews continued to dig for bodies under mounds of rubble left by the 6.2 magnitude quake.
"There are families which have been destroyed. We must give them hope," said Don Sante Bertarelli, who was a priest in Amatrice for 15 years and returned to help comfort his former parishioners after the disaster.
Of the 292 confirmed dead, 231 were found in Amatrice.
Mourners pay their respects.
A number of foreigners were among the dead, including 11 Romanians and three Britons.
Renzi, Italian President Sergio Mattarella and Romanian Prime Minister Dacian Ciolos were expected to attend the funeral, which was set to start at 6 pm, the Civil Protection Agency said.
Many of those who died in Amatrice were not residents and their funerals are being held in their hometowns.
A fireman used a rope to hoist a wooden statue of Christ borrowed from a nearby church above a makeshift altar for Tuesday's service. Hours before the ceremony, relatives placed bouquets of flowers and pictures of their loved ones on the simple wooden coffins.
Controversy
In the town centre, emergency workers used mechanical diggers and bulldozers to search for bodies, with up to 10 people still believed to be missing under the debris.
It rained on Tuesday for the first time since the quake, complicating the search efforts and setting an even more sombre mood.
It is the second state-sponsored funeral in three days. On Saturday rites were held for victims of the quake from the adjoining Marche region. Amatrice is in the region of Lazio.
Controversy has grown over poor construction techniques, which may have been responsible for some of the deaths.
Investigators are looking into work done on the bell tower in Accumoli, which was recently restored but collapsed during the quake onto the home of a family of four, killing them all.
A court sequestered the half-demolished school building in Amatrice, which had recently been remodelled in part to help it withstand earthquakes.
Italy sits on two seismic faultlines. Many of its buildings are hundreds of years old and susceptible to earthquake damage.
Almost 30 people died in earthquakes in northern Italy in 2012 and more than 300 in the city of L'Aquila in 2009.
