Fawcett, who fought for women’s right to vote 100 years ago, joins 11 all-male statues in the square, including Sir Winston Churchill, Nelson Mandela and Mahatma Gandhi.
The 8ft 4in bronze statue features a 50-year-old Fawcett, who died in 1929, holding a banner which reads “Courage calls to courage everywhere”.
It was unveiled by her great-great niece, schoolgirls from Millbank Academy and other figures in the successful campaign.
Activist and writer Caroline Criado Perez launched an online petition in 2016 after noticing during a run through Westminster that there were no statues of women in Parliament Square.
The petition gained thousands of signatures and Westminster Council and Mayor of London Sadiq Khan confirmed last September that the statue would be built by Turner Prize winner Gillian Wearing.
Ms Criado Perez said: “Women are still woefully underrepresented, but we are making one hell of a start in changing that.”
Speaking at the unveiling, Theresa May said: “I would not be here today as Prime Minister, no female MPs would have taken their seats in Parliament, none of us would have had the rights and protections we now enjoy, were it not for one truly great woman, Dame Millicent Garrett Fawcett.
“For generations to come, this statue will serve not just as a reminder of Dame Millicent’s extraordinary life and legacy, but as inspiration to all of us who wish to follow in her footsteps.”
London Mayor Sadiq Khan described it as a “historic day”.
“The decision to commission this statue was a no-brainer,” he said.
“It is vital that we fix the imbalance and make sure more women are represented in our public spaces.”
Jeremy Corbyn said the statue was a great step forward but “a lot more can be done”.
“There’s a number of women who deserve statues,” the Labour leader said.
“Sylvia Pankhurst for example, and those women that suffered in Holloway Prison, in my constituency. We have named a library in honour of them – called the Cat And Mouse Library, after the Cat and Mouse laws.”
The line “Courage calls to courage everywhere” is a line from a speech Fawcett made after the death of suffragette Emily Wilding Davison in 1913.
She was killed after throwing herself under King George V’s horse at the Epsom Derby.
Fawcett started petitioning for the right to vote in 1866, gathering signatures and lobbying politicians of the day.
Some women were granted voting rights in 1918 and Fawcett was in the Commons’ public gallery in 1928 when women were given the right to vote on the same terms as men.