City authorities said that 17,000 people formed the chain around the rebuilt city center. News agency DAPD reported that they included Germany's interior minister and Saxony's state governor.
Three waves of British and U.S. bombers on Feb. 13-14, 1945, destroyed Dresden's centuries-old baroque city center.
The total number of people killed has long been uncertain. In 2008, a panel commissioned by state officials found that the firebombing killed no more than 25,000 people - far fewer than scholars' previous estimates that ran as high as 135,000.
Dresden remembers the victims while also recalling "nights and days in which Warsaw, Rotterdam and Coventry were earlier reduced to rubble by German bombers," deputy mayor Detlef Sittel said.
Far-right groups have long sought to exploit the bombing. A few thousand supporters marched later Sunday from the city's main station, carrying torches and banners with slogans such as "the victims were our families."
The far right is a marginal political force in Germany and has no seats in the national parliament. However, Saxony, where Dresden is located, is one of two states where the far-right National Democratic Party has seats in the regional legislature.