Prime Minister Kassim Majaliwa was among hundreds of people who gathered at Kaitaba Stadium in Bukoba, with Muslim and Christian clerics leading prayers for the dead as onlookers wiped away tears.
The Precision Air flight from the financial capital Dar es Salaam crashed on Sunday morning while trying to land in the northwestern city of Bukoba.
Police blamed bad weather for the accident.
Twenty-four survivors were plucked to safety out of the 43 people aboard flight PW 494, with investigators from Precision Air and the Tanzania Airports Authority arriving in the lakeside city on Sunday.
AFP journalists saw the plane largely submerged on Sunday as rescuers, including fishermen, waded through water to bring people to safety.
Emergency workers attempted to lift the aircraft out of the water using ropes, assisted by cranes as residents also sought to help.
President Samia Suluhu Hassan on Monday hailed emergency workers and volunteers for acting quickly to save lives.
"I congratulate those who participated in the rescue, including the people of Bukoba," she said on Twitter.
"I pray for the deceased to rest in peace and for the injured to recover quickly."
The accident has sparked anger among many Tanzanians over the government's handling of the rescue effort.
"We will... improve the government response to such accidents in partnership with the private sector," Defense Minister Innocent Bashungwa said at the ceremony.
"The accident investigations are still ongoing and I would like to ask the public to remain calm for now," Transport Minister Makame Mbarawa added.
Precision Air, which is partly owned by Kenya Airways, was founded in 1993 and operates domestic and regional flights as well as private charters to popular tourist destinations such as Serengeti National Park and the Zanzibar archipelago.