Shepard became the first American in space on May 5, 1961, soaring 116 miles high in his Freedom 7 capsule.
The Soviet Union's Yuri Gagarin beat him into space by just 23 days. Then, as now, those who helped launch Shepard took solace in the fact that "it was the first one for the free world."
Shepard died in 1998 at age 74. NASA played the original capsule recording of his voice for the entire 15-minute flight, during the hourlong ceremony.
"Roger, liftoff, and the clock has started," Shepard called out, the boom of the liftoff in the background.
The recording of the flight was timed precisely to the second of the 9:34 a.m. launch time.
A compilation of TV footage from that day - the launch itself and the huge crowds on the beaches - played on a giant screen near the stage. In the background, a replica of the Mercury Redstone rocket stood on the actual launch pad.
Former shuttle astronauts winced as Shepard reported the building G's - nine times the force of gravity and more - during the initial descent.
"I went ooh, that hurts just sitting here and listening," NASA Administrator Charles Bolden, a former space shuttle commander, told the crowd of more than 600. "He was our first in space and will forever be an icon."
Some of the Project Mercury team had to support themselves with canes and walkers. But they stood proudly when asked to rise and be recognized by the hundreds of others gathered there at the Cape Canaveral Air Force Station.
All three of Shepard's daughters sat in the front row, surrounded by about 20 family members, including two of the astronaut's great-grandchildren.
One of the daughters, Alice Wackermann - whose birthday is May 5 - recalled how she and her sisters and mother watched the launch on their black-and-white TV set at home in Virginia Beach, Va. Police officers and journalists jammed the family's front yard, and not realizing the crowd was there for them, she alerted her mother, "Oh my, there's stuff going on in the neighborhood."
Only two of the original Mercury 7 astronauts are still alive. John Glenn, the first American to orbit the Earth, could not attend the celebrations because of a death in the family. But Scott Carpenter was on hand.
Carpenter recalled how he and fellow astronaut Walter Schirra flew the chase planes for Shepard's launch. They lost sight of the rocket at 3,000 feet.
"When the first flight goes straight up, it's hard to chase," Carpenter said.
Retired NASA engineer Norm Perry, 77, said Shepard's successful flight was "a big boost, I mean major," given that the Soviets had scored two victories with the launch of the world's first artificial satellite, Sputnik, in 1957, and Gagarin's flight on April 12, 1961.
The Soviets, he said, "were willing to stick a man in a can and let it go," while NASA was more cautious. Perry - who helped build and test the Mercury Redstone that carried Shepard on the suborbital flight - noted that Gagarin's capsule was automatically controlled, while Shepard and the rest of the Mercury astronauts operated their spacecraft.
"Shepard was the first one to pilot a spacecraft, and that's what he did," Perry said.
Shepard later became the fifth man to walk on the moon as commander of Apollo 14. It was barely three weeks after his Mercury shot that President John F. Kennedy announced America would launch a man to the moon and safely return him by decade's end.
Apollo 16's Charles Duke, the 10th man to walk on the moon, remembered Shepard as "a great boss." Shepard served for years as the chief of the astronaut corps during the 1960s.
"He was tough but fair," Duke said.
In orbit, the two Americans aboard the International Space Station quietly marked the anniversary, along with their four crewmates.
"We're honoring the occasion in a way, I think, Alan Shepard would really appreciate, by living and working in space," said astronaut Ronald Garan Jr. He noted the orbiting lab was "only a dream" 50 years ago.
It was the second day of anniversary festivities.
On Wednesday at the neighboring Kennedy Space Center, the Postal Service dedicated a first-class Forever stamp to Shepard's Mercury shot - the first stamp honoring a specific astronaut. And on Saturday, a dozen or so astronauts - including Carpenter - will ride in open Corvettes in downtown Cocoa Beach, mimicking the parades of the Mercury era.