His casket was draped in the Australian flag and he received military honours as family, friends and colleagues gathered to pay their respects.
The retired major general died at the age of 72 this month after he was diagnosed with an aggressive form of cancer in 2021.
His daughter, broadcaster Erin Molan, carried his service medals as defence personnel and parliamentarians joined family and friends at the military chapel in Canberra on Wednesday.
Mr Molan's children spoke of his dedication to his family and career, and his "enthusiasm, energy and grit".
"I thought it was something all kids had, a dad that absolutely adored them," Erin Molan said, reflecting on the family man.
Governor-general David Hurley, former prime ministers Tony Abbott and Scott Morrison, Opposition Leader Peter Dutton and other senior Liberal figures were among the mourners.
Some 22 of the senator's former military classmates gathered at the funeral, while many more of the surviving 35 watched proceedings online.
Retired major general Roger Powell, who trained with him at Duntroon said Mr Molan always excelled and his time at the college foreshadowed his future success while serving in the armed forces.
"Jim was described by his troops as a soldier's general and a genuine senior leader characterised by his unwavering respect for others," he said.
"Jim was a warrior in every sense."
Mr Dutton said for all the darkness of war Mr Molan was exposed to as a soldier, he remained an "optimist about humanity".
"That speaks volumes about the mettle of his character and the kindness in his heart," the opposition leader said.
Mr Dutton became emotional when talking about what the late senator meant to his family.
"He was not just an Australian, he was one of our greatest. May he rest in peace."
Also choking back tears, Mr Powell added, "The only thing that made Jim tear up was that he would not be able to support (his wife) Anne in future chapters of their lives together".
Former prime minister Tony Abbott said Mr Molan always put service first.
"Jim never did anything for Jim. He always did it for our country and for the causes he believed in," he said.
Scott Morrison said the glowing tributes from colleagues and friends "captured the true essence of the man".
"He'll leave a hole but the thing about him is he always would be bringing up others behind him. That's the mark of a great leader," he said.
Mr Molan's 40-year military career included deployments to countries including Papua New Guinea, East Timor and Iraq.
He was elected to the Senate in 2017 before being defeated at the 2019 general election, returning months later to fill a casual vacancy.
His health deteriorated rapidly after Christmas and he died on January 16.
