Stars attending the memorial service at St Paul’s Church in Covent Garden, central London, included Brian May, Mark Knopfler and Bill Wyman.
Music which Donegan helped popularise rang out in the building as his work as a pioneer of British pop was remembered.
Queen star May sang I’m Just A Rolling Stone, accompanied by Lonnie’s son Peter and Lonnie’s Group.
And there was a rollicking finale to the ceremony when the same musicians performed Have A Drink On Me.
Donegan died in November aged 71, midway through a UK tour after collapsing at the home of friends in Peterborough, Cambridgeshire.
He had been complaining of back trouble shortly before he felt unwell and suffered heart attacks in the past.
He was responsible for inspiring a number of stars, including May and Sir Paul McCartney, to take an interest in music.
May told the congregation: “I was one of those kids who was totally inspired the first time I heard Lonnie Donegan.
“I could not believe this thing called skiffle. It’s absolutely the reason I first picked up a guitar.
“It’s a great thrill to play today with his fantastic band.”
Dire Straits star Knopfler said afterwards: “It was Lonnie got me started, his were the first records that I bought, or got my Mum to buy.”
He added: “He was the first British rock superstar.”
Rolling Stones star Wyman told PA News: “The service was wonderful, it gave you all a really good feeling, we all enjoyed it, there were a lot of laughs, and that’s the way he would like it.
“He was the first Englishman that did it, he was the inspiration to all the bands of the 60s, and we owe it to him.”
The service was also attended by guitar legend Bert Weedon, who will be 83 on Saturday, and said: “I thought it was superb, a lovely tribute to Lonnie, who was a lovely man.
“I was so pleased to see so many of my fellow guitarists here.”
Also present was former Northern Ireland secretary Mo Mowlem, who said: “He was a friend of mine, it was a very moving service.”
Glasgow-born Donegan left school aged 14 and worked as a clerk in a stockbrokers office before developing an interest in country and western music during military service.
His hits included My Old Man’s A Dustman and Cumberland Gap, which got to number one in 1957.
In the 1990s he was awarded a lifetime achievement Ivor Novello award for his song writing, and in 2000 he was appointed MBE for his contribution to music.