As she dedicated the fountain, the Queen acknowledged there had been difficult times with her late daughter-in-law but said "memories mellow with the passing of the years."
Water flows from the highest point down both sides of the fountain, which stretches 260 feet by 160 feet. At some places the flow is agitated, at others calm.
Completed nearly seven years after Diana's death, the $6.5 million memorial came in for some harsh criticism.
"It's a waste of money; it's just a funny canal," said Reginald Overy of suburban London. "They should have a statue of Diana in the middle. It's ridiculous — it's a paddling pool for children."
Youngsters were happy with the design, however.
"You get to splash your annoying cousins." said Sophie Spillard, 17, one of the first to kick off her shoes and wade in the big ring of flowing water created in Hyde Park.
"They build statues of everyone and this is just a bit different," said the annoying cousin, 10-year-old Jonathan Cowie.
Diana's brother, her sons and one of her best friends all expressed satisfaction.
"I think she would have loved it. It's fun. It's a clever design. It's inclusive — people will be able to enjoy it and children will be able to paddle in it," said the brother, Earl Spencer.
The fountain, designed by American architect Karen Gustafson, was intended to invite kids to jump in, echoing Diana's own affability and warmth.
"I chose it and I stand by it," said Diana's friend Rosa Monckton, who chaired the Memorial Fountain Committee. "It's today in the sunlight that you see the point of it."
The queen, who stood beside the Spencer family for the first time since Diana's funeral, acknowledged that there had been difficult times with her late daughter-in-law but "memories mellow with the passing of the years."
She said little of her own relationship with the princess but remarked on Diana's "extraordinary effect ... on those around her."
The queen was joined by her husband, Prince Philip, Diana's former husband, Prince Charles and their children princes William and Harry.
"I remember especially the happiness she gave to my two grandsons," the queen said of William and Harry.
The only reference to Diana on the memorial is a small engraving with her name and title.
"I would like to see Diana or something kind of in her likeness," said Doris Biukham, of Ilford, England. "You wouldn't realize it was for Diana if you came upon it."
"I don't know what it's supposed to mean," said Natalie Okine, 31, who walked over to the memorial from her Notting Hill home. "It's nice, though I thought it would be bigger and more impressive. People say it's understated but it might be too understated."
Construction of the fountain, built of 545 blocks of Cornish granite, was delayed by bureaucratic wrangling and arguments within the Memorial Fountain Committee.
Funded primarily by private donations, the Royal Parks and the Department for Culture, Media and Sport provided extra funds when the installation ran $1.1 million over budget.
By Rachel Gould