The display in Block 27 places the former camp in the broader context of Nazi Germany's systematic attempt to wipe out Europe's Jewish population.
It is being overseen by Israel's Yad Vashem Holocaust institute.
Earlier in Warsaw, Mr Netanyahu accused Iran, one of Israel's strongest foes, of planning a new Holocaust.
By Adam EastonBBC News, Warsaw
The new permanent Shoah exhibition has replaced the dilapidated one that was installed in 1960s communist-era Poland.
It is an impressive, powerful exhibition. Upon entering a darkened room a prayer can be heard. The next room displays a panorama of slides and video of pre-war Jewish life in Europe. One room is devoted to Nazi ideology, showing video of speeches by Hitler and Goebbels. A map points out the numerous Jewish extermination sites across Europe. One of the most moving displays highlights the 1.5 million Jewish children murdered by the Nazis. An art installation reproduces their pencil drawings made during the Holocaust on stark white walls.
There is also a Book of Names, running to 58 volumes, which aims to list all the names of the six million Holocaust victims. Finally, there is a room for visitors to sit and reflect upon the horrors they have just seen.
On Thursday, he was taken around the exhibition at the former camp before making a speech at the opening ceremony, Yad Vashem reported on its Twitter account.
The original Jewish exhibition at Auschwitz dated back to the 1960s and had fallen into neglect, prompting the Israeli government to decide recently on a revamp.
An estimated one million Jews, together with some 100,000 people of other ethnicities and backgrounds, died in Auschwitz and the adjacent Birkenau camp, in gas chambers or from starvation, disease and forced labour.
The new display features:
Mr Netanyahu used a visit to the Polish capital on Wednesday to warn that Iran was now a major threat to the Jews.
Iranians are going to the polls on Friday to elect a new president, with the hard-line incumbent, Mahmoud Ahmadinejad, not eligible for a third term.
Mr Netanyahu said the Iranian election on Friday would "change nothing" in the Islamic republic's alleged quest for nuclear weapons.
"This is a regime that is building nuclear weapons with the expressed purpose to annihilate Israel's six million Jews," he said. "We will not allow this to happen. We will never allow another Holocaust."
Tehran denies seeking to acquire nuclear weapons.
Iran is viewed as a threat in Israel because of its aggressive rhetoric, its support for militant groups in the region, its arsenal of long-range missiles and its nuclear work.
However, critics of the Israeli prime minister have accused him of citing the Holocaust too frequently in the context of Iran.
Aluf Benn, editor of liberal Israeli newspaper Haaretz, wrote in an editorial last week: "Shoah [Holocaust] warnings have taken over the political and military discourse."
Israeli Prime Minister Benjamin Netanyahu has opened a Holocaust exhibition at the Auschwitz Nazi death camp site in southern Poland.