Iran has begun loading fuel into its first nuclear power station in a ceremony attended by Russian officials.
Russia will operate the Bushehr plant in southern Iran, supplying its nuclear fuel and taking away the nuclear waste.
Iran has been subject to four rounds of UN sanctions because of its separate uranium enrichment programme.
Experts say that as long as the plant is Russian-operated, there is little immediate threat of its fuel being diverted to make bombs.
From Washington, the US state department said that it saw no "proliferation risk" from the plant. The UK also said had "always respected" Iran's right to civilian nuclear power.
However Israel has condemned the move.
"It is totally unacceptable that a country that so blatantly violates (international treaties) should enjoy the fruits of using nuclear energy," its Foreign Ministry said in a statement.
The Bushehr facility has taken 35 years to build and has been plagued by delays.
"Despite all pressure, sanctions and hardships imposed by western nations, we are now witnessing the startup of the largest symbol of Iran's peaceful nuclear activities," Iranian nuclear chief Ali Akbar Salehi told journalists at the plant.
The BBC's Jon Leyne says Iranian officials have promoted Saturday's launch as a victory for the Islamic republic against its enemies. Nationwide celebrations are planned to mark the event.
But Professor Ali Ansari, an Iran expert at the University of St Andrews, in Scotland, said Tehran was likely to exaggerate the importance of the start-up at Bushehr.
"It will obviously have a very theatrical opening but the delays have meant that the power plant is a very old model and the contribution to the national grid is very small," he said.
Reports in Washington suggested that the US lifted its objections to the completion of the plant at Bushehr as the price for Russia's vote in the latest round of sanctions against Iran.
Western officials have been changing their tune recently, our correspondent says, describing Bushehr as an example of the peaceful benefits of nuclear energy, to which Iran is entitled.
While backing Iran's right to civilian nuclear power, UK Foreign Office minister Alistair Burt said there were other issues that caused concern.
"The problem is Iran's continued refusal to satisfy the IAEA (International Atomic Energy Agency) and international community that its work on uranium enrichment and heavy water projects are exclusively peaceful," he said.
The Bushehr plant should begin producing electricity in about a month, experts say.
It is not seen by analysts as posing a significant proliferation risk.
The uranium fuel it will use is well below the enrichment level needed for a nuclear weapon. Weapons-grade uranium must be enriched by more than 90%. In contrast, the uranium at Bushehr is enriched by 3.5%.
The Bushehr fuel has been supplied by Russia, although Iran is already producing its own uranium enriched to fuel grade.
It has also begun a pilot program to enrich uranium to 20% which it says is needed for a medical research reactor.
It is that programme that has alarmed the West and Israel.
The West fears Tehran wants to build a nuclear weapon, but Iran insists its plans are for peaceful energy production.
In a defiant statement on Friday, the head of Iran's Atomic Energy Organisation Ali Akbar Salehi said the country would continue uranium enrichment, the official Iranian news agency IRNA reported.
Referring to the Bushehr plant, he said: "Suppose we receive the required nuclear fuel for the plant from the Russians for the next 10 years, what are we going to do for the next 30 to 50 years?"
He said Iran could produce up to 30 tons of enriched uranium at its Natanz plant once the necessary centrifuges are installed at the site.