The official opening ceremony on Sunday morning began with a multi-faith prayer and release of doves as a "small act of remembrance" to mark the tragedy.
The white birds were released from the hands of survivors and local residents, as well as leader of Kensington and Chelsea council Elizabeth Campbell, mayor of London Sadiq Khan and local MP Emma Dent Coad.
Ms Dent Coad addressed the "Grenfell generation", telling them: "Today is a day to set aside our burden of sadness."
The Bishop of Kensington, the Rt Rev Dr Graham Tomlin, was among those leading the opening prayers, offering three prayers of hope, harmony and healing.
He said: "My prayer is that, in these two days, God will give us his rest, his hope, his harmony, and his ear."
Crowds fell silent during an emotional performance of Bridge Over Troubled Water by Brenda Emmanuel.
Another musical tribute, by Alexander D Great, included the lines: "Pray for mothers, pray for babies, pray for all whose cries are in our ears.
Handmade green hearts and streamers adorned the judging area, while spectators were decked out in green following a campaign encouraging people to go "green for Grenfell", which organisers said they hoped would symbolise "reverence and respect amidst the revelry".
Ms Dent Coad, dressed in white with a green scarf, said: "Today is a day to set aside our burden of sadness, and enjoy some real joy with our families, our friends and our amazing community, which the world now knows about - though it's always been here, we know that.
"Today, Carnival is for you. Set aside your sadness and worries, smile, dance and sing along. And we will have the most wonderful, musical, colourful and lovable Carnival ever.
"Remember you are the Grenfell generation, and you are special."