German forces took the skulls from the tens of thousands left dead during an anti-colonial uprising by the once-mighty Herero and Nama people from 1904 1908.
They were used for discredited "scientific" experiments to prove the racial superiority of white Europeans, but then disappeared into the archives of German institutions, where a journalist discovered them three years ago.
"German scientists dissected their skulls in laboratories, emptied their brains and dyed them with all kinds of colourations to prove their racist and fascist ideology – that the black man's intellectual capacity is inferior to that of a Caucasian," said Herero chief Alfons Maharero.
"The return of the skulls serves as a strong evidence that Namibia has a case to demand restorative justice for the genocide committed by Germany during its colonial rule," he said.
"Our ancestors were treated with total contempt and were shown no respect, treated like chimpanzees in laboratories," Maharero said.
He spoke at a state memorial at the Heroes' Acre shrine to liberation war dead, outside the capital Windhoek.
Namibian President Hifikepunye Pohamba decried the colonial-era abuses, but did not mention reparations when he addressed the 1,000 mourners.
"German imperial troops committed horrendous atrocities," against Namibians, he said.
"Through their unselfish sacrifices, our ancestors laid a strong foundation for the modern liberation struggle," leading to independence from South Africa in 1990.
"Their spirits were never broken and while their mortal remains were removed from Namibia amidst the ruins of war, they returned now to an independent, peaceful and stable Namibia," Pohamba added.
German ambassador Egon Kochanke said the return of the skulls, "reminds us of a dark chapter in history, which still causes tremendous grief. Allow me to mourn with you and to bow my head in deep regret."
Germany has ruled out reparation and always maintained that its €600 million in development aid since Namibia's independence was "for the benefit of all Namibians."