The first 12-carriage cargo train carrying raw materials left South Korea's Munsan station early in the morning for the Kaesong industrial park just inside the North. The freight-only service will run daily on weekdays.
"The launch of the cargo train service is a significant event that will mark a page in the nation's history," South Korea's Yonhap agency quoted senior Cabinet minister Kwon Ho-ung as saying.
"It will invigorate the Kaesong industrial complex while greatly contributing to achieving reconciliation, cooperation and the unification of our nation."
The Kaesong complex is the largest joint economic project between the countries, being developed with South Korean technology and North Korean cheap labor. Dozens of South Korean companies are operating at the park, employing more than 20,000 workers from the impoverished North.
The South has until now relied on road and sea transit to supply goods to the complex, and the opening of a regular cargo rail link is certain to speed up deliveries and bring costs down.
The project was a key achievement of the historic inter-Korean summit held in October in Pyongyang. Soon after the summit the rail line was re-opened and a one-off symbolic train run was made across the border.
South Korea hopes to extend the rail service to reach China and Russia's Trans-Siberian Railway, and to run passenger as well as freight trains.
Korea Railways President Lee Chul told journalists: "Though we are starting with a cargo train, it will lead to a passenger train service and will soon be linked to the continental trains. The economic benefits are countless."
In November the two Koreas agreed on a range of projects aimed at rebuilding the impoverished North's decaying infrastructure, including South Korean plans to build a shipyard in the northwest of the country and to repair the highway linking Kaesong to the capital, Pyongyang.
The two states have yet to sign a formal peace agreement to replace the ceasefire following the 1950-1953 Korean War, meaning that the sides technically remain at war. The United States, whose signature is needed on a peace treaty, has said it will not sign until the North scraps its nuclear weapons "in a verifiable fashion."