Gunditjmara-Bundjalung elder Archie Roach died in July at the age of 66 after a long illness.
Premier Daniel Andrews apologised to Uncle Archie for his forced removal from his family at the age of two, an act which took him away from his country, culture, community and language.
Past government policies and laws had placed immense pain, suffering and despair on Uncle Archie, the premier said.
"We apologise for the extreme inhumane acts committed against you, the torture, the unspeakable hurt and the intergenerational trauma that you and your family continue to experience," Mr Andrews said.
The apology was accepted by Uncle Archie's sister Aunty Myrtle Evans.
The service has drawn thousands of people to the Sidney Myer Music Bowl, where Australian music greats are performing in his honour.
Uncle Kutcha Edwards has sung a revised national anthem, and in an emotional tribute he remembered travelling the world performing with Uncle Archie.
Uncle Kutcha then joined with Uncle Archie's son Amos Roach to perform Took the Children Away, which is Uncle Archie's 1990 debut single that reflected his experience as a member of the stolen generation.
The song heralded his arrival to the Australian music scene and featured on his first album Charcoal Lane.
Uncle Archie toured globally and was inducted into the ARIA hall of fame in 2020, having won eight ARIA awards.
For many years he performed with his partner in life and music, the late Ruby Hunter.
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