A piper led the cortege carrying his body, the coffin draped with an Irish tricolour, a black beret and gloves.
It made its way through the Markets and to Milltown Cemetery, where Mr Davison will be buried in a republican plot.
It is understood the grandfather and father-of-three had been making his way to a community centre where he worked when he was attacked.
He was shot a number of times while walking along Welsh Street in the staunchly-republican Markets area close to the city centre.
As the IRA officer commanding in Belfast, he was one of the best-known republican figures in the city.
He backed Sinn Fein's peace process strategy following the 1998 Good Friday Agreement and was employed with the Markets Development Association as a community worker.
He was allegedly involved in the fight that led to the death of Belfast man Robert McCartney in January 2005 and was among three IRA members expelled following an internal investigation in the wake of the death. He was questioned by police but released without charge.
Mr McCartney's sisters, who were forced to move out of the Markets, led a long-running battle for justice for the killing of their brother following a bar argument, which took them to the White House.
The killing happened at a time when Sinn Fein was under pressure to accept the rule of law in Northern Ireland. Its decision to support the police two years later led to the formation of a ministerial executive at Stormont and the sharing of power between republicans and the DUP.
Mr Davison's uncle, Terence Davison, was later acquitted of Mr McCartney's killing.
Family members walked a short distance from Mr Davison's home and held a memorial service near where he was shot. Black balloons were carried.