The four-day trip to commemorate World Youth Day marked his first foreign visit as Pope.
The 78-year-old pontiff said young people should turn their backs on secularism and faddish new-age religions.
He said there was “a kind of new explosion of religion” that if pushed too far, turned faith into “almost a consumer product.”
At the open-air mass, the Pope also announced that Sydney will host the 11th World Youth Day (WYD) in 2008, the biggest international event for Catholic youth.
WYD, launched by Pope John Paul II two decades ago, has become an important event for the Church to rally young Catholics.
The Pope will attend the week-long event of prayer, celebration and religious instruction to be held at Sydney’s Olympic Park in July 2008.
The event is expected to draw 250,000 people, including 80,000 overseas visitors.
The Archbishop of Sydney Cardinal George Pell, who was joined by 2,500 Australian pilgrims in Germany, said tonight it was an honour to be entrusted with the event but acknowledged Sydney had an enormous task ahead.
The Pope returned to Rome on Sunday evening, ending what is seen as a highly successful visit during which he met German Jewish and Muslim leaders.
During his landmark visit to Cologne’s synagogue on Friday — only the second ever by a pope to a Jewish place of worship — he condemned the “unimaginable crime” of the Holocaust in an address to Jewish leaders.
And on Saturday he urged Muslim leaders to do more to combat the “cruel fanaticism” of terrorism that aimed to poison ties between Christians and Muslims.
Shortly before his departure, the Pope had time to lament the “dramatic” shortage of new recruits to the priesthood in his homeland, and urged German bishops to do more to get new vocations.
Outlining the problems facing the Church in his homeland, he said “secularism and de-Christianization” continued to rise, while the “influence of Catholic ethics and morals were in constant decline.”
Yet, he warned them there could be “no false compromises, no watering down of Gospel,” in efforts to attract young people to the Church.
Earlier Sunday, in a 20-minute homily dominated by a staunch defence of the everyday practice of religion against secularism, the Pope warned the multinational crowd of young pilgrims that constructing their faith on a “do-it-yourself” basis would ultimately prove fruitless.
“People choose what they like, and some are even able to make a profit from it. But religion constructed on a ‘do-it-yourself’ basis cannot ultimately help us.”
Benedict urged the young Catholics to keep God at the centre of their lives and underlined the importance of Sunday mass and receiving Holy Communion.