He was welcomed to the Palace by Archbishop of Canterbury Rowan Williams.
Also in the welcoming committee were the Archbishop of York, Dr John Sentamu, the Archbishop of Wales Dr Barry Morgan and the Primus of the Scottish Episcopal Church, Most Rev David Chillingworth.
Lambeth Palace, on the south bank of the River Thames, has been the London residence of archbishops of Canterbury since the 13th century.
It acts as a home for the Archbishop and his family when in London and as the central office for his ministry.
Dr Williams led the Pope to the Great Hall of the Palace to a gathering of Church of England diocesan bishops and Roman Catholic bishops of England, Scotland and Wales.
The bishops cheered as the pair entered the room and the Pontiff waved at the crowd.
Dr Williams welcomed the Pope and spoke of the historic visit as "a special time of grace and of growth in our shared calling".
He said: "It is a particular pleasure that on this historic occasion we are able to come together as bishops of the Roman Catholic and Anglican Churches in this country to greet you, Your Holiness, during a visit which we all hope will be of significance both to the Church of Christ and to British society.
"May this historic visit be for all of us a special time of grace and of growth in our shared calling, as you, Your Holiness, bring us the word of the Gospel afresh."
Dr Williams said Christian leaders must be ready to fight back against the critics of religion.
He said their duty "involves a readiness to respond to the various trends in our cultural environment that seek to present Christian faith as both an obstacle to human freedom and a scandal to human intellect".
Dr Williams continued: "Our presence together as British bishops here today is a sign of the way in which, in this country, we see our task as one and indivisible.
"Our fervent prayer is that this visit will give us fresh energy and vision for working together.
"Meeting, as we do, as bishops of separated church communities, we must all feel that each of our own ministries is made less by the fact of our dividedness, a very real but imperfect communion.
"Perhaps we shall not quickly overcome the remaining obstacles to full, restored communion.
"But no obstacles stand in the way of our seeking, as a matter of joyful obedience to the Lord, more ways in which to build up one another in holiness by prayer and public celebration together, by closer friendship, and by growing together both in the challenging work of service for all whom Christ loves, and mission to all God has made."
Addressing the bishops, the Pope acknowledged the obstacles to unity between the Catholic and Anglican churches, saying: "It is not my intention today to speak of the difficulties that the ecumenical path has encountered and continues to encounter. Those difficulties are well known to everyone here."
He said he wanted to give thanks for "the deep friendship that has grown between us".
The Pope said society was moving away from its Christian heritage.
He said: "On the one hand, the surrounding culture is growing ever more distant from its Christian roots, despite a deep and widespread hunger for spiritual nourishment.
"On the other hand, the increasingly multicultural dimension of society, particularly marked in this country, brings with it the opportunity to encounter other religions."
He said moves towards unity in the two churches "will surely bear fruit in promoting peace and harmony in a world that so often seems at risk of fragmentation".
The Pope urged Christians to stand up for their faith, saying: "We Christians never hesitate to proclaim our faith."
The Archbishop and the Pope then exchanged gifts.
Dr Williams presented the Pontiff with a leather-bound diptych - two panels hinged together - of facsimiles of illuminations from the 12th-century Lambeth Bible.
The two panels represent the Biblical story from Genesis to Christ and the Church.
The Romanesque-style Bible is thought to have been written and illustrated in Canterbury between 1150 and 1170.
The Pope presented the Archbishop with a copy of the "Codex Pauli", prepared in Rome to celebrate the Pauline Year in 2009 - the year of St Paul.
One of Dr Williams' essays is bound into the newly illustrated volume.
After the Pontiff led a closing prayer, the pair retired to the Archbishop's residence for a private meeting.
Dr Williams has met the Pope four times in Rome since his election to the Papacy in 2005.
Both men are outstanding academics, and are said to enjoy a good relationship.
But the meeting comes after tensions between the two churches over a scheme unveiled last year by the Vatican allowing disaffected Anglicans to join the Catholic Church while retaining key elements of their spiritual heritage.
The announcement of the so-called "personal ordinariates" came as Dr Williams struggled to deal with the fallout within his own church over introducing women bishops.
The introduction of women bishops in the Church of England, which moved a step closer this summer, has been opposed by the Vatican as a "break with apostolic tradition" and a "further obstacle" to any efforts at dialogue between the two churches.
To add to the tensions, in July the Vatican listed the attempted ordination of a woman, just as sexual abuse of a child by a priest, as one of the most grave crimes that exists in the Catholic Church.
The Pontiff also met the Archbishop's wife, Jane Williams, and viewed some displays in Lambeth Palace Library.
The library hosts a store of ecclesiastical documents covering, alongside the records of the Church of England, the archive of former Archbishops of Canterbury.
After the meeting, the Pope left Lambeth Palace, 10 minutes behind schedule, and was helped down the steps of the official residence by Dr Williams.
He climbed into the Popemobile in the courtyard of the Palace and began his journey to Westminster Hall.
Police intervened during an angry exchange between protesters and Papal supporters before a mixture of boos and cheers greeted the Pope's departure from Lambeth Palace.
As one man, holding hands with two children, attacked campaigners for "ruining the day", Bill Maloney, 55, from Lewisham, said: "I was abused as a child, I've every right to be here."
Amid fears that the argument could turn violent, officers separated the two groups.
Speaking afterwards, Mr Maloney said: "I was abused in a Catholic institution and we have as much right as anyone to be here.
"The Pope has a big burden to sort out and we're here to make sure he knows that."
Supporters outnumbered protesters stretched along Lambeth Bridge towards Westminster.
The majority waved flags and cheered as the church leaders left the building.
Carrying a host of colourful Pope memorabilia was Angie Fuller, 68, from Bury St Edmunds.
She said: "It's one of my personal highlights to be here today.
"There have been many negative things said but the majority are thrilled by this visit."
Despite the cheers, protesters held up banners with messages including "where are our women priests?", "atheism, not nazism" and "no Catholic cover-ups - make our children safe."
One man screamed "my rights are being ignored" as he was searched by officers amid tightened security around the site.
The Archbishop of York, Dr John Sentamu, and the Archbishop of Westminster, the Most Rev Vincent Nichols, both joined the Pontiff for his journey.
Before the ceremony, Dr Sentamu asked a passer-by to take a photo of him in front of the Popemobile on his mobile phone.
"I have got to get myself one of these," he said.
"I met the Pope in the Vatican in November 2007 and it will be wonderful to meet him again."
After the service, the Bishop of Moray, Ross and Caithness, the Rt Rev Mark Ross, said: "It was a lovely service, to sit with my Roman Catholic brethren to pray together - I feel uplifted."
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