Reds owners Fenway Sports Group have renamed the Centenary Stand after the 66-year-old, who spent 20 years at the club as player and manager.
Dalglish arrived at Liverpool in 1977 for a then-record British transfer fee of £440,000 from Celtic and went on to become one of the club's greatest ever players.
The Scotsman won a total of eight league titles, three European Cups, two FA Cups, five League Cups and one UEFA Super Cup in a red shirt.
Dalglish then enjoyed two separate spells as manager between 1985-91 and 2011-12, guiding the Merseysiders to three title wins, two FA Cups and a League Cup.
"I'm hugely honoured to be recognised by Liverpool in this way," Dalglish said at Friday's official unveiling.
"This is a club that means so much, not just to me, but to countless people who have contributed to it either through their ability as footballers, their passion as supporters or their commitment as owners and administrators.
"I just hope that the people sitting in the stand that bears my name derive as much enjoyment from watching Liverpool as I have had from playing for them."
The renaming ceremony featured a number of former teammates and friends including Gerard Houllier, Gary McAllister, Robbie Fowler, Alan Hansen, Michael Owen and Steven Gerrard, as well as Manchester United greats Sir Alex Ferguson and Sir Bobby Charlton.