Traffic was diverted from roads leading up to Azadi (freedom) square ahead of a march to remember the day in 1979 when Ayatollah Ruhollah Khomeini ousted the shah's last government.
Stalls set up by state institutions handed out tea and cakes and choirs sang revolutionary songs, as crowds massed despite driving rain.
Life-size replicas of Iranian-made cruise and ballistic missiles lined the route in a statement of defiance at a time of heightened tensions with the United States.
The event Monday is the culmination of official celebrations called the "10 Day Dawn" that mark the period between February 1, 1979 and February 11 when the revolution's leader Khomeini returned from exile and toppled the monarchy.
The state has played up this year's anniversary as 40 is symbolic of maturity in the Islamic tradition and the age at which Holy Prophet (PBUH) received revelations from Allah.
The 10 days that changed Iran forever
But despite the official festivities today's Islamic republic faces acute economic challenges as it struggles with a mix of domestic hardships and US sanctions.
Extensive fireworks displays were held across Tehran on Sunday night.
Iran unveils long-range cruise missile on anniversary of revolution
Before the fireworks, supporters of the revolution shouted chants of "Allahu Akbar" (God is greatest) from rooftops, recalling the protests that swept Khomeini to power four decades earlier.
Current supreme leader Ayatollah Ali Khamenei is set to publish "a detailed statement explaining the 'second step' of the progress of the Islamic revolution", his official website said.
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