The Type 45 destroyer, one of the Navy's newest warships, made a ceremonial entrance into the harbour, accompanied by four Navy helicopters, two Merlin and two Lynx, hovering above in diamond formation.
An RAF typhoon completed the flypast as a gun at the harbour entrance, at Fort Blockhouse in Gosport, Hampshire, answered the ship's salute with 21 booming return shots.
On board, HMS Diamond's crew lined the flight deck to give a rousing three cheers for the Queen, before settling down for a 'street party' on its decks.
The ship's Petty Officer Dick Davies described the occasion as "a proud day for all involved".
Watching from the shore, 76-year-old local Bill Harris, said it brought back memories of watching the Queen return from South Africa alongside her father, King George VI, in 1948.
He said: "I can still remember watching the masts of HMS Vanguard appearing over the horizon. I was about 12 so the Queen wasn't much older than me. We don't have a fleet like that now but it was moving all the same today. She's done us proud hasn't she, much better than most of her critics."
Captain Mark Durkin, of the Royal Navy, told Sky News: "Portsmouth is a very traditional seaway. Many vessels have come in and out of this famous naval port.
"It is fitting perhaps that one of the Navy's newest ships, our own Diamond, is conducting this ceremony for the Queen - a historic ceremony which goes back to the 17th century.
"The 21-gun salute is a royal salute. It goes back to the days of when a foreign warship would approach a foreign nation and discharge its weapons to indicate that it was posing no threat to that country and it was coming in peace, and in return the country would fire a return salute to acknowledge that.
"That then became a formal ceremony and is acknowledgement of the royal family, and is acknowledging the Queen's tremendous achievement."
Meanwhile, preparations are taking place for celebrations in the capital to mark 60 years of the Queen on the throne.
Tom Parmenter, Sky News correspondent, reports from Canary Wharf in east London:
Vessels of all shapes and sizes are gathering on the Thames ahead of the historic Diamond Jubilee river pageant.
Historic boats from all over the world have moored up in West India Dock just yards from the skyscrapers of London's Canary Wharf.
Michelle Goodson is a crew hand on a 1962 German river fireboat that is taking part.
She told Sky News: "There is just such sense of history to it all.
"Each of these boats has got a great story behind them, and everyone is pitching in helping each other out with the last minute preparations."
Horns were sounded every time another group of new vessels arrived at West India Dock, a holding station for those taking part.
David Hunt, an enthusiast from Suffolk, told Sky News: "This is just a once in a lifetime event, I feel so privileged."
He added: "Yes we'll be a little anxious that everything goes to plan on Sunday but what a great chance to be part of something so special."
Emma Birchley, Sky News correspondent, reports from Putney in south-west London:
Along the banks of the Thames in central London there is a buzz as preparations are made ready for Sunday's pageant.
The boats will muster upriver of Putney.
Gondolas all the way from Italy have been arriving.
Tim Williams is a member of two rowing clubs in Venice which have sent boats, one of which is the biggest gondola in the world at 24 metres.
"It's going to be terrific. The Italians burst into song at any opportunity," said Tim, who will be on board one of the boats.
Grenville Houser is the pageant's beach master at Putney.
He will be making sure every one of the manpowered boats is ready by noon on Sunday to head downriver for the start of the pageant.
"There are so many volunteers and so much goodwill for something as special as this that people are making a supreme effort to make sure it all goes smoothly," he said.
"This is a once in a lifetime opportunity. I wouldn't be anywhere else at the moment."
Rhiannon Mills, Sky News reporter, reports from central London:
Earlier, thousands of servicemen and women braved the early morning chill in central London in preparation for Tuesday's carriage procession.
They gathered at Wellington Barracks in London at 3.30am for one final rehearsal ahead of the event, which will provide the grand finale to the weekend's events.
As the rest of London was sleeping, the Sovereign's guard and the historic carriages moved through Parliament Square and up Whitehall to Trafalgar Square.
They then proceeded onto The Mall towards Buckingham Palace, following the same route they will take with the Royal family.
More than a thousand personnel from all three services lined the route, on foot and on horse back, creating an extraordinary dawn chorus through the quiet streets of the capital.
With thousands of spectators expected to gather along the route on Tuesday afternoon, this was a chance for the organisers to put the finishing touches to the military display before they are watched by a worldwide audience.
The procession will be the colourful climax to the four-day Diamond Jubilee celebrations, with carriages, cascading gunfire and military bands expected to provide a glittering display.
The Queen and The Duke of Edinburgh will travel in the 1902 State Landau carriage used by The Duke and Duchess of Cambridge after their wedding.
The Prince of Wales, The Duchess of Cornwall, The Duke and Duchess of Cambridge and Prince Harry will also take part in the procession in different carriages.
Once they arrive at Buckingham Palace the Queen will be joined on the balcony by other members of Royal family to witness an RAF fly past and the Feu de Joie (fire of joy) - a rifle display performed by the Queen's Guard set to the National Anthem.
The only time it has been performed for the Queen previously was for her 80th birthday.
Members of all the armed forces were involved in the dress rehearsal including the Royal Navy and Royal Marines, the Household Cavalry, the King's Troop Royal Horse Artillery and the Royal Air Force Colour Squadron, along with livery from the Royal Mews.
Read more about the Diamond Jubilee:
:: Prince Charles In Tribute To 'Devoted Mama'
:: In Detail: Diamond Jubilee River Pageant
:: Jubilee Celebrations: Full Schedule Of Events