She earned the nickname "the Iron Lady" for her personal and political toughness in office.
The session in the House of Commons is expected to last several hours.
The House of Lords, where Thatcher served after she was ennobled to Baroness Thatcher of Kesteven following her departure from office, is also holding a session in her honor.
Former Conservative leader Michael Howard, now Lord Howard, defended her approach to decision-making, seen by many as divisive.
"If she had waited for consensus, nothing would ever have happened," he said. "She saw what needed to be done and she did it, with clarity, with courage and with compassion."
Very few people have made a contribution to the nation on the scale of that of Thatcher, he said, and "the light of her legacy will shine as a beacon down the generations."
Lord Norman Tebbit, a former chairman of the Conservative Party and a Cabinet minister under Thatcher, recalled her kindness to him and his wife after they were badly injured in the Brighton bombing.
Working for her was made easier by the firmness of her convictions, he added.
The last time both houses of Parliament were recalled during a recess was in summer 2011, when London and other cities were rocked by riots and looting.
A towering figure in postwar British and global politics, Thatcher is remembered in the world for her Cold War-era friendships with U.S. President Ronald Reagan and Soviet leader Mikhail Gorbachev, as well as her role in shaping Britain's place in Europe and the short, sharp war she waged with Argentina over the disputed Falkland Islands.
At home, she divides opinion. Many Britons blame her for creating soaring unemployment, when she reduced or eliminated many government subsidies to business and took on the unions.
Her battle with striking coal miners won her few friends in mining communities in northern England and Wales. But supporters believe the tough reforms she pushed through transformed the British economy and gave many working people new freedoms.
Preparations are already under way for a funeral to be held next Wednesday at St. Paul's Cathedral. With full military honors, it will rival those given to Diana, Princess of Wales and the Queen Mother.
The queen, accompanied by husband Prince Philip, will be among the high-profile guests.
However, Prince William and his wife, Catherine, who's expecting their first child, will not attend the funeral, nor will Prince Harry, Prince Charles or his wife, Camilla, Buckingham Palace said.
The announcement that Thatcher would receive a "ceremonial" style funeral, one step down from the state funeral usually reserved for the monarch, has prompted heated debate in the United Kingdom.
While some supporters want her to be given a state funeral, others have questioned whether she merits a send-off on par with that of Diana's.
The service, which will be televised, will be followed by a private cremation, Cameron's office said Tuesday.
Crowds are expected to line the streets between the Palace of Westminster -- where her coffin will lie on the eve of the funeral -- and St. Paul's Cathedral.
On the day of the funeral, the coffin will travel by hearse from Westminster to a Royal Air Force chapel, where it will be transferred to a gun carriage drawn by the King's Troop Royal Artillery.
From there, it will be taken in procession to St. Paul's Cathedral along a route lined by servicemen and women from the army, Royal Navy and Royal Air Force.
Thatcher's family and friends will wait inside the cathedral with many who worked with her in government and elsewhere.
The funeral is being organized in line with the wishes of her family, Downing Street said. They include her twin children, Mark and Carol.