Several police and army units have been deployed to prevent possible clashes between supporters of Terreblanche and the local black population.
Around 3,000 people are commemorating his controversial life in the north-western rural town of Ventersdorp.
Terreblanche led the Afrikaner Resistance movement, the AWB.
Thousands of AWB supporters have gathered in the town, with the mourners including both armed men in camouflage and young children, says the BBC's Karen Allen in Ventersdorp.
South Africa's trade union federation Cosatu is holding a mass meeting on the other side of the town.
Our correspondent says the effect of this meeting - called to discuss recent farm violence - is not clear.
On the one hand, it is a way of occupying some black farm workers who otherwise might turn up at the funeral, she says.
But on the other hand, it could be seen as a somewhat provocative gesture given the timing, she adds.
The Afrikaner Protestant Church where the service is being held, is normally attended mostly by white South Africans.
As a gesture of reconciliation, dignitaries from the local black community have been invited to attend the service, our correspondent says.
But just a handful of them are likely to take up that offer, she adds.
Two of Terreblanche's workers have been charged with his murder.
Although the authorities stress that the killing had more to do with money than politics, it has led to a period of heightened racial tension.
White groups and opposition parties blamed an ANC official, Julius Malema, for singing an apartheid-era song at rallies, that includes the lyrics "shoot the Boer [farmer]".
The ANC has rejected that link, but accepts that the song and the debate around it was polarising society.
It has now instructed its members to stop using it.
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