The carrier said flight ET0312 to Asmara departed Bole International Airport on Wednesday after a ceremony inaugurating the historic flight.
"This day marks a unique event in the history of Ethiopia and Eritrea," the airline's chief executive Tewolde GebreMariam said at the ceremony.
Overwhelming demand saw the African aviation giant operate two flights within 15 minutes of each other.
"The fact that we are taking two flights at a time shows the eagerness of the people," said GebreMariam.
Al Jazeera's Mohamed Adow, reporting from Addis Ababa, said the majority of the passengers were people separated from their families by the war.
"On the eve of the war, Ethiopia expelled more than 70,000 Eritreans and Eritrea did the same, expelling thousands more from its territories and that created separations between families," he said.
Wednesday's development is the latest positive step taken by the neighbouring countries in the last two weeks.
On July 9, Ethiopia's Prime Minister Abiy Ahmed arrived in Eritrea's capital Asmara to sign a landmark agreement with President Isaias Afwerki, formally ending the "state of war" between their nations.
A week later, Isaias visited Ethiopia to reopen Eritrea's embassy in Addis Ababa. The newly appointed reformist Abiy first instigated the peace overtures and restoration of relations in April.
Ethiopia and Eritrea expelled each others' envoys at the start of the 1998-2000 border war, which killed about 80,000 people.
Once a province of Ethiopia, Eritrea seceded in 1993 after a long independence struggle. A dispute over the demarcation of their shared border triggered the conflict.
The Horn of Africa nations remained at loggerheads since Ethiopia rejected a United Nations ruling and refused to cede to Eritrea land along the countries' border following the 1998-2000 war.