The King, who is the ceremonial head of the armed forces, laid flowers at the monument in the National Memorial Arboretum in central England at a service attended by scores of serving troops and veterans.
The sculpture takes the form of a crumpled bronze letter bearing words from personnel who were affected by the ban.
Between 1967 and 2000, soldiers, sailors and air force personnel who were – or were thought to be – gay or transgender were labelled unfit to serve and dismissed or discharged from the forces.
Some were stripped of medals or lost their pension rights, and many struggled with the stigma for decades.
The government lifted the ban after a 1999 ruling from the European Court of Human Rights.
In 2023 then-prime minister Rishi Sunak formally apologised for what he called "an appalling failure of the British state".
A compensation program was established, with veterans who were dismissed from the military because of their sexual orientation or gender identity receiving up to 70,000 pounds ($A142,500) each.
LGBTQI military charity Fighting with Pride said the new monument represents a "powerful step forward in recognising and honouring the service and sacrifices" of the gay and transgender troops.
Claire Ashton, who was forced to leave the Royal Artillery in 1972, when she was 21, said it was "a moment I never believed would happen, a moment full of meaning and, finally, of pride."
"I'm in my 70s now and have forever lived with the psychological scars of being kicked out – 'medically discharged,' as it was labelled on my records," she said.
"It means so much to be with others who've been through similar nightmares to me and, like me, are making peace with the past."
Brigadir Clare Phillips told the ceremony that as "a gay woman who has served in the British Army for 30 years … my career has taken me from a life of secrecy, fear and darkness to a career of pride, openness and joy.
"For the serving community, today's unveiling of this incredible memorial is about remembering that we stand on the shoulders of giants - those people who fought discrimination and persecution so we can now serve openly and proudly," she said.
