A smiling Suu Kyi, wearing a traditional jacket and a flower in her hair, appeared at the gate of her compound as the crowd chanted, cheered and sang the national anthem.
Speaking briefly in Burmese, she thanked the well-wishers, who quickly swelled to as many as 5,000, and said they would see each other again Sunday at the headquarters of her political party.
The 65-year-old Nobel Peace Prize laureate, whose latest period of detention spanned 7 1/2 years, has come to symbolize the struggle for democracy in the Southeast Asian nation ruled by the military since 1962.
The release from house arrest of one of the world's most prominent political prisoners came a week after an election that was swept by the military's proxy political party and decried by Western nations as a sham designed to perpetuate authoritarian control.
Supporters had been waiting most of the day near her residence and the headquarters of her party. Suu Kyi has been jailed or under house arrest for more than 15 of the last 21 years.
As her release was under way, riot police stationed in the area left the scene and a barbed-wire barricade near her residence was removed, allowing the waiting supporters to surge forward.
Her release was immediately welcomed by several activist groups around the world, and British Prime Minister David Cameron said it was long overdue.
"Aung San Suu Kyi is an inspiration for all of us who believe in freedom of speech, democracy and human rights," he said in a statement.
Critics allege the Nov. 7 elections were manipulated to give the pro-military party a sweeping victory. Results have been released piecemeal and already have given the junta-backed Union Solidarity and Development Party a majority in both houses of Parliament.
The last elections in 1990 were won overwhelmingly by Suu Kyi's National League for Democracy party, but the military refused to hand over power and instead clamped down on opponents.
Suu Kyi's release gives the junta some ammunition against critics of the election and the government's human rights record, which includes the continued detention of some 2,200 political prisoners and brutal military campaigns against ethnic minorities.