Milan mayor Giuseppe Sala greeted the Dalai Lama at the city's Linate airport, and the Buddhist leader then met Milan's Archbishop, Cardinal Angelo Scola, and made a visit to Milan's Tibetan centre.
He also spoke to students at the city's university, before officially being made a Milanese citizen in a ceremony at the Teatro degli Arcimboldi, a theatre and opera house.
Officials presented the spiritual leader with a symbolic key to the city and a scroll representing Milan's freedom, local media reported.
The Dalai Lama's visit was met with protest from China, with the Beijing government announcing at a press conference on Thursday: "We are strongly against [the Dalai Lama having] any contact or meetings with officials of other countries."
The 80-year-old monk is currently on a tour of Europe and visited the Czech Republic and Slovakia earlier this week.
Rome's Chinese embassy said in a statement that the plan to honour the Dalai Lama "has seriously wounded the feelings of the Chinese people" and would have a "negative impact" on Chinese-Italian relations.
round 100 members of the Chinese community protested on the streets on Thursday, waving Italian and Chinese flags.
When asked about the demonstrations, the 1989 Nobel Peace Prize Winner said that Chinese embassies often organized protests against him, and that some protesters didn't know what they were protesting about.
"At times, it seems like I cause problems wherever I go," the spiritual leader joked.
Relations between China and the Dalai Lama are tense; while the latter says he merely wants his homeland, Tibet, to have more freedom under Chinese rule, Beijing claims he encourages separatism.
In an interview with Italian daily La Repubblica, the Dalai Lama described the climate in Tibet as "extremely repressive, characterized by the constant control of Tibetans, who are denied many basic human rights."
This was the Dalai Lama's fourth visit to Milan, and he also visited Italy in 2014 for a summit of Nobel Peace Prize laureates, held in Rome.
On that occasion, the event had to be moved from Cape Town, where it had originally been scheduled to take place, after the South African government failed to issue a visa to the Dalai Lama