Tsai, the island's first leader with aboriginal heritage, will personally head a committee to investigate past injustices as part of government efforts to ease tensions with the native community.
"I apologise to the indigenous people on behalf of the government, offering our deepest apology for the suffering and injustice you endured over the past 400 years," she said in speech.
"We need to look at history seriously and speak the truth," she said, adding that apologising was "another step forward".
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The Indigenous community, which makes up about 2 percent of Taiwan's 23.5 million people, have seen their traditional culture eroded since immigrants started arriving from China centuries ago.
Much of their land is now designated national park, leading to clashes over hunting, fishing and foraging in areas where permits are needed.
Aboriginal people have also complained of developments on their ancestral land, which campaigners say make up two-thirds of the island, were approved without seeking their views.
Tsai pledged to increase the autonomy of aboriginal communities, restore their lost land rights and protect tribal languages.
"The apology was well said and very touching, but her proposals for action don't meet our expectations."
But for dozens of Aboriginal people protesting outside the presidential office Monday morning, her promises were not enough.
"The apology was well said and very touching, but her proposals for action don't meet our expectations," said Mayaw Biho, an indigenous activist from the Amis tribe, who had camped out overnight.
Since coming to power in May, Tsai's Democratic Progressive Party (DPP) has not made legislation promoting Indigenous rights a priority in parliament, he said.
"It's unfair. It's not being taken seriously," he told AFP.
- Deliver on promises -Indigenous people remain a marginalised group in Taiwanese society, with wages about 40 percent below than the national average, as well as a higher rate of unemployment.
Tsai on Monday listed numerous wrongs done to the indigenous population, including storing nuclear waste on Yami tribe's land on Orchid Island.
"We have been protesting for over 30 years," said Capen Nganaen, an 80-year-old Yami representative wearing a loincloth, who spoke after Tsai.
"I hope Taiwan's government and the president will truly deliver on the promises made in this apology," he said.
Tsai and the DPP came to power after winning a landslide victory in January over the Kuomintang (KMT).
The Indigenous Peoples Basic Law was adopted in 2005, during the DPP's last reign, but critics say actions to amend relevant laws have stalled.
This means many Aboriginal people have been arrested or fined for "illegal" hunting or fishing, which is allowed in the basic law.
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Earlier Monday, tribe members who had been invited to Tsai's speech burned millet stalks in front of the presidential office as part of a traditional ceremony welcoming the ancestral spirits to join them.
Tsai greeted the representatives from each of the island's 16 recognised tribes, who were all wearing their traditional tribal clothing.
In a deviation from her usual plain blazers, Tsai wore a grey suit made by an Indigenous designer, which featured a black butterfly pattern.
