The five-minute ceremony took place before the Sabres' game against the Ottawa Senators.
Housley, Buffalo's first-round draft pick - sixth overall - in 1982, made his pro debut with the Sabres straight from high school. He scored 178 goals and added 380 assists during eight seasons with the team. His 558 points rank fifth in the team record book.
"It's great to be back in Buffalo," Housley said during the ceremony, during which he received a silver sword from former Sabre great Gilbert Perreault.
Housley specifically thanked Scotty Bowman, who drafted Housley and was part of the on-ice gathering. "They took a chance on a kid coming out of high school in St. Paul, Minnesota, and gave me the opportunity to play in the NHL."
After Buffalo traded him following the 1989-90 season, Housley played another 13 seasons with seven teams, retiring in 2003 as the highest-scoring American-born player in NHL history with 1,232 points, a figure no player has yet surpassed.
During a press conference following the ceremony, Housley expressed hope that he would take the next step and enter the Hockey Hall of Fame when he becomes eligible later this year.
"It would be the highest honour you can get," Housley said. "Hopefully I can get there."
Housley was inducted into the U.S. Hockey Hall of Fame in 2004. He was a seven-time member of the U.S. National Team, and received a Silver medal at the 2002 Olympics.
He is currently head coach for the boys' hockey team at Stillwater (Minn.) High School, and was an assistant coach for the Bronze medal-winning Team USA at the World Junior Championships earlier this year.
The Sabres now have 33 members in their Hall of Fame, and Housley is the 17th player to be honoured.
"You always appreciate where you started," Housley said. "This was the place I played the longest. I played with some great players who helped me achieve a lot of things."