Papal audiences are normally held inside a Vatican hall in the winter.
But such is the level of interest that the event is being held outdoors and 50,000 tickets have been requested. As many as 200,000 people may attend.
After Benedict XVI steps down on Thursday, he will become known as “pope emeritus”.
There has been no papal resignation since Pope Gregory XII abdicated in 1415.
The surprise announcement of Benedict’s abdication has required the rules of electing a successor to be changed to allow the next pope to be chosen before Holy Week, which leads up to Easter.
The Pope, 85, is making one of his last public appearances – using his trademark white “popemobile” to greet pilgrims in St Peter’s Square.
Many of the cardinals who will elect his successor are in the square.
Chants of “Benedetto!” are erupting every so often and the mood is buoyant, reports the Associated Press.
Organisers say there will be no traditional kissing of the pontiff’s hand because of the sheer size of the expected crowd.
“He doesn’t want to favour one or the other of the pilgrims,” Vatican spokesman Federico Lombardi told the AFP news agency.
The BBC’s Alan Johnston in Rome says that on Thursday the Pope will travel by helicopter to his summer residence at Castel Gandolfo, about 15 miles (24km) south-east of Rome. He will cease to be Pope at 20:00 local time.
On Tuesday, it emerged that Benedict would be known as “pope emeritus” and would retain the honorific “His Holiness” after his abdication.
He will also continue to be known by his papal title of Benedict XVI, rather than reverting to Joseph Ratzinger.
He will wear his distinctive white cassock without any cape or trimmings.
He will surrender his gold ring of office, known as the fisherman’s ring, and his personal seal will be destroyed in the same way as when a pope dies.
Benedict will also give up wearing his specially-made red leather loafers, instead wearing brown shoes hand-made for him by a craftsman during a brief visit to Mexico last year, the Vatican said.
The title “emeritus” is used when a person of status, such as a professor or bishop, hands over their position, so their former rank can be retained in their title.
The Pope is to spend his final hours at his Vatican residence saying farewell to the cardinals who have been his closest aides during his eight-year pontificate, says the BBC’s David Willey at the Vatican.
His personal archive of documents will be packed up and, at 20:00 (19:00 GMT) on Thursday, the Swiss Guard on duty at his Castel Gandolfo residence will be dismissed, to be replaced by Vatican police.
This will mark the formal end of his papacy and the beginning of the period of transition to his successor, due to be chosen next month.
From 4 March, the College of Cardinals will meet in general congregations to discuss the problems facing the Church and set a date for the start of the secret election, or conclave, to elect Pope Benedict’s successor.
That successor will be chosen by 115 cardinal-electors (those younger than 80 years old) through ballots held in the Vatican’s Sistine Chapel.
A two-thirds-plus-one vote majority is required. Sixty-seven of the electors were appointed by Benedict XVI, and the remainder by his predecessor John Paul II.
About half the cardinal-electors (60) are European – 21 of them Italian – and many have worked for the administrative body of the Church, the Curia, in Rome.