Members of her family including her children Sir Mark and Carol Thatcher attended a short church service in the chapel of the central London site before a solid oak casket containing her ashes was placed in the ground.
A headstone bearing the simple inscription "Margaret Thatcher 1925 - 2013" was being erected on top of her final resting place in the leafy grounds of the hospital.
The country's first female prime minister died aged 87 on April 8.
Twelve Chelsea Pensioners dressed in their distinctive scarlet coats formed a guard of honour as her ashes were placed alongside those of her husband Sir Denis, who died in 2003.
Prayers were said by hospital chaplain the Reverend Richard Whittington as her family members comforted one another.
Among the small group of mourners was Lady Thatcher's former private secretary Lord Powell and Lord Bell, her former political adviser.
Sir Mark, his wife Sarah and Carol then took it in turns to each place a single red rose alongside the casket.
Carol, who wore a cream-coloured jacket and hid her eyes behind large sunglasses, comforted Cynthia Crawford, who was Lady Thatcher's personal assistant for more than 30 years, as they stood by her final resting place.
Most mourners - made up of only immediate family and close friends - wore black, including Sarah Thatcher.
The private service was held in All Saints Chapel in the hospital's Margaret Thatcher Infirmary, which she opened in 2009.
Prayers were said while music was provided by the chapel choir who sang Po Atarau, a traditional Maori song of goodbye in recognition of Lady Thatcher's family connections with New Zealand.
Lady Thatcher - the longest-serving prime minister of the 20th century - built up a strong relationship with the Royal Hospital Chelsea during the last 10 years of her life and her final resting place was down to her wishes.
After her death, her family asked that donations instead of flowers be made to the hospital. Fourteen Chelsea Pensioners also lined the steps as her coffin was carried into St Paul's Cathedral at her funeral on April 17.
The headstone was made by the Cardozo Kindersley Workshop in Cambridge and is made out of Hopton Wood, a type of limestone quarried in Derbyshire.
Lady Thatcher's family met the costs of the interment.
The wooden casket bears a brass plaque with her name on it.
Lady Thatcher's ceremonial funeral with full military honours was attended by a congregation of more than 2,300 people including the Queen, Prime Minister David Cameron and dignitaries from 170 countries around the globe.
Thousands also lined the streets of London to pay their respects as the coffin bearing her body was brought in procession to the cathedral on a gun carriage drawn by six black horses.
A private cremation was later held at Mortlake Crematorium in south-west London.
Lady Thatcher became MP for Finchley in 1959 and was Conservative prime minister between 1979 and 1990.
The Iron Lady's passing led to some of her detractors holding "death parties" across the country and abroad.
But fears that the funeral would be disrupted by demonstrations did not materialise, despite some booing from protesters who turned their backs as the coffin passed and anti-Thatcher banners along the route.
There were no protests during today's internment, which was not publicised.