Governor Margaret Beazley, Premier Chris Minns and representatives of international allies - and a former foe - were among those to lay wreaths at the cenotaph in Martin Place before daylight on Tuesday.
The service was first held in 1927 and is the forerunner to services run by 320 RSL sub-branches across the state.
Glenda Rixson, who wore the medals of her later father Henry "Harry" Rixson, a Korean War infantryman, was touched that the 70th anniversary of the Korean Armistice Agreement was noted in the Martin Place service.
"Usually they don't say anything - it's like it's the forgotten war, " she told AAP.
"I'm really proud of my father, he passed away eight years ago. It's a special day, we used to always watch him march."
The First Field Ambulance Association's Lieutenant Colonel Victor Tsang said he used the time to remember the sacrifice of all Australians, including those of the migrant community.
"It's important for me because as a migrant, we also like to contribute ourselves to the country," the 32-year veteran told AAP.
"During the Gallipoli campaign, more than 30 per cent of the soldiers were actually migrants."
The crowd ballooned from George Street to Castlereagh Street as some took vantage points in alcoves of the General Post Office building or around the fountain to catch a view of the ceremony's focal point, the 96-year-old cenotaph.
Diplomats from Belgium, the United Kingdom, Canada and Turkey were among those to lay wreaths, while a hymn in Maori by the Sydney Maori Choir marked New Zealand's sacrifice.
NSW Veterans Minister David Harris said it was heartening to see firsthand the large crowd honouring the Anzac spirit and paying tribute to the service and sacrifice of veterans.
"Anzac Day gives the community an opportunity to pay their respects to those who have served our country," he said.
Later on Tuesday, more than 7,000 current serving members and veterans, including World War II veterans, will march from Martin Place to the Anzac Memorial in Hyde Park.
Aircraft flyovers in coastal regions will be conducted by the RAAF and Wollongong-based Historical Aircraft Restoration Society Museum, with the museum taking a Spitfire Mk IX, Grumman Tracker S-2G, Dakota C-47 to the skies.
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