The former Australian ambassador to Israel received applause after swearing his affirmation of allegiance on Monday and was then congratulated by his colleagues.
He was flanked by his NSW moderate faction colleagues Andrew Bragg and Maria Kovacic while being sworn in.
Senator Sharma won Liberal preselection to replace the retired former foreign minister Marise Payne in her NSW seat.
Members of the state Liberal branch had expressed concerns about another Sydney-based senator being selected, with the former pick of Senator Kovacic hailing from the city's west.
She replaced the regionally-based, late Jim Molan after his death earlier this year.
Senator Sharma will reportedly set up his office in Sydney's west as the Liberals look to claw back support and win predominantly Labor-held seats.
He lost his seat of Wentworth in Sydney's east at the federal election last year to teal independent Allegra Spender.
But he secured preselection over former NSW state treasurer Andrew Constance and former ACT senator Zed Seselja, who also lost his seat to an independent at the last election.
Opposition Leader Peter Dutton said his entry into the Senate came at a crucial time during international politics and his foreign policy experience would be a great asset.
His swearing in comes just weeks before his 48th birthday.
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