The 48-year-old died after he was shot with a police Taser when officers were called to an incident in his home town of Telford on August 15.
A service was held at Telford Crematorium chapel, followed by an interment at nearby Hadley cemetery.
Former Villa players Ugo Ehiogu, Ian Taylor, Steve Staunton, Gary Charles and Tommy Johnson, as well as former manager Brian Little, were among those who gathered at the town's crematorium to see the striker laid to rest.
During the humanist service, celebrant Peter Mansell, read a family tribute.
He said Dalian had played football in the street where he grew up in Trench with his brothers and friends.
He was later spotted by talent scouts, leading to his apprenticeship at Ipswich Town FC.
Mr Mansell said: "He found sitting at a school desk boring, but excelled at football and athletics."
He said Dalian had enjoyed an "illustrious" career and had a huge network of friends, but never forgot his roots.
Mr Mansell said: "He would take every opportunity to return home to see his family and friends.
"He was an inspiration to his nieces and nephews, encouraging them to use their talents."
He said Dalian had been "down to earth", "funny" and "cheeky", adding: "Dalian was always a generous, caring and protective man who was loyal to his friends."
Video - Aston Villa stars and fans pay tribute
A tribute penned by Atkinson's niece, Cleo, said: "You always exuded a strong, beautiful presence. You were a magnet to people who couldn't help but be drawn to you and like you."
During the 30-minute service, music played included Ain't No Bluff by the Villa squad, on which Dalian performed, and Can't Hide your Love by David Joseph.
Concluding the service, Mr Mansell told the grieving congregation: "This is a sad day but it is a celebration of his life. Remember the good things he did."
He told them there was "only one song" left to play in Atkinson's memory and En Vogue's What A Man played as mourners filed out.
Mr Mansell told the congregation that Atkinson, who also played for Sheffield Wednesday, loved the "playboy lifestyle", was "energetic, cheeky and funny" but also "generous, caring and protective".
Family man Atkinson was "an inspiration to his nieces and nephews" and often returned "for his mother's home cooking".
Mr Mansell added: "A part of their world is gone."
In her tribute, Atkinson's niece Josie said: "Inspiration is the word most appropriate to you, a figure I looked up to and still do."
Another niece, Cleo, said: "You had such a charismatic soul and enriched everyone's lives with your intellect, insight and warmth, never failing to make people around you laugh."
Outside, Villa fan Chris Jackson told how he had felt compelled to pay personal tribute to "tremendous" Atkinson.
He witnessed Atkinson lift the the Coca-Cola Cup with Villa after the striker hit the target in the memorable 3-1 victory over Manchester United in 1994.
Brian Little, who managed Villa from 1996, said he had seen the "softer side" of Atkinson, then struggling to return to form after injury problems.
He said: "It was a different side to what everybody saw of him.
"I had six months with the lad but when his move to Fenerbahce (in Turkey) came up he was buzzing, because it was a new challenge for him."
Former player, and later assistant manager, Gordon Cowans and ex-striker Tommy Johnson also paid their respects.
Ugo Ehiogu, ex-Villa centre back, and now part of Tottenham Hotspur's youth set-up, said he last spoke to Atkinson in June.
He said: "He was a very understanding man.
"When I first came to Villa he took me under his wing, explained things to me and filled me with confidence."
He added that the pair had arranged to meet before his death but "sadly it didn't happen".
Ehiogu has backed the on-going investigation into the circumstances of Atkinson's death, and the use of force by police.
He said: "I don't know many details about his death.
"I still hope it will be looked into as to how - and the use of force has to be looked into, because a very valuable member of the community has been lost."
Following the service, Atkinson was to be interred in private at nearby Hadley Cemetery.
Yesterday relatives paid tribute to Atkinson as a "kind, caring and protective" son and brother and spoke of their continuing agony at his death.
A public notice announcing the funeral read: "Dalian Atkinson died tragically on August 15. Beloved son of Ernest and the late Ambrozine, much beloved brother to Elaine, Kenroy, Paul and Otis, and a dear uncle and great uncle."
There was a collection at the crematorium for those wishing to make a donation to charity.
Former striker Atkinson died after police were called to an incident in the street where he grew up, Meadow Road in the Trench area of Telford, in the early hours of August 15.
The retired footballer became unresponsive after being shot with a Taser.
He died despite the efforts of hospital doctors, who battled for 35 minutes to try to save him.
The death of Atkinson, of Little Dawley, near Telford, is being investigated by the Independent Police Complaints Commission.
Two police officers with the West Mercia force are suspended pending a criminal investigation by the IPCC into the former professional footballer's death.
As part of the IPCC inquiry, both officers have also been served with gross misconduct notices.
The watchdog has said it will look into the level and type of force used during the incident.
In August, a coroner said the IPCC's investigation was due to take at least nine months.