Xi Jinping warmly welcomed Modi at the Shaanxi Guest House here as the two leaders shook hands for photographs.
In his opening remarks, Modi appreciated the Chinese leader for warmly receiving him outside Beijing.
"This is an honour to 125 crore Indians whom I am representing as Prime Minister," said Modi, who was wearing a black bandhgala suit.
Recalling his visit to Ahmedabad in September last year, President Xi Jinping said, "You received me very warmly in your hometown. I am very glad to receive you in my hometown."
While Modi spoke in Hindi, Xi Jinping made his remarks in Chinese.
Embarking on the three-day visit to China that will take him to Beijing and Shanghai after Xi'an, Modi had expressed confidence that his trip would deepen mutual trust, work out a roadmap for upgrading bilateral economic ties and set a "new milestone" for Asia and developing nations.
Modi, who is undertaking his first visit to China as Prime Minister, reached the ancient city of Xi'an this morning and was accorded a grand welcome.
Xi Jinping is meeting Modi in his hometown of Xi'an in an unusual departure from normal protocol that is being seen as a reciprocal gesture by the Chinese leader who was hosted by Modi in Ahmedabad when he visited India.
Irritants like the boundary issue and China's plans for infrastructure projects in Pakistan-occupied Kashmir (PoK) stand in the way of taking the bilateral ties forward and were likely to be discussed by the two leaders.
Modi has met President Xi Jinping three times during the last one year and held extensive talks on a wide range of issues.
The Prime Minister is being accompanied by National Security Advisor Ajit Doval, Foreign Secretary S Jaishankar and other senior officials.
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