Rifleman William Aldridge of Bromyard, Herefordshire, was 18 when he died trying to save comrades in 2009.
A plaque commemorating his sacrifice was unveiled in the town's St Peter's Church.
It followed a campaign for a permanent memorial by William's mother, Lucy Aldridge.
She said she was "absolutely delighted" that her son, killed by a bomb in Helmand province, had received "the recognition he deserved in his home town".
The service on Saturday afternoon coincided with William's regiment, The Rifles, being given the freedom of Bromyard.
A ceremony took place in Market Square, with a parade of service personnel through the town.
Among them were representatives of William's 2nd Battalion, the Hereford company of 6th Battalion The Rifles, the Bromyard platoon of Hereford and Worcester Army Cadet Force, Herefordshire Light Infantry, and the King's Shropshire Light Infantry.
The youngest British soldier to be killed in Afghanistan has been honoured in his home town - seven years after he died.