The beatification ceremony, in the Sicilian capital Palermo, marks the penultimate step on the path to being made a saint.
Don Giuseppe Puglisi was shot by a hit man in front of the church where he used to urge his congregation to disobey mafia bosses.
He will be the first victim of organized crime to be declared a martyr by the Catholic Church.
Six men are currently serving life sentences for the murder, which took place on Don Giuseppe Puglisi’s 56th birthday.
Forty bishops and a cardinal representing Pope Francis attended the ceremony, as well as government ministers from Rome.
Born in Palermo, Don Giuseppe Puglisi was the son of a shoemaker and seamstress, and was ordained at the age of 22.
Don Giuseppe Puglisi taught mathematics and religion in several schools, served as the chaplain in an institute for orphans, and went on to work in run-down areas of Palermo.
But he became a target as he grew increasingly outspoken in denouncing crime and alleging collusion between politicians and mafia figures.
Don Giuseppe Puglisi has been declared a martyr of the church, murdered “in hatred of the faith”.
He was famous for a rhetorical question, which he used as a catch phrase in order to encourage Sicilians to stand up and fight organized crime: “And what if somebody did something?”
The Catholic Church has been accused in the past of an ambiguous relationship towards Cosa Nostra, the men who for decades have controlled organized crime on the Mediterranean island.
By beatifying Father Puglisi, the Church is making a strong stand against mafia crime – which has been protected by a code of silence.
Earlier this month, Pope Francis proclaimed the first saints of his pontificate in a ceremony at the Vatican – a list which includes over 800 victims of an atrocity carried out by Ottoman soldiers in 1480.
These meant that, within two months of taking office, Pope Francis had proclaimed more saints than any previous Pope, although his predecessor Pope Benedict had given the go ahead for their canonizations.
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