The so-called "Patriotic Europeans Against the Islamization of the Occident", founded half a year ago in Dresden, had aimed to top their previous record from January of 25,000 people joining a rally.
Instead, only about 10,000 turned up, according to media estimates, many waving Germany's red-black-gold national flag and yelling their standard chant of "we are the people".
"Dresden is showing how it's done," said the flamboyant Dutch politician with the trademark peroxide blond hair, who has called Islam a fascist religion and compared the Koran to Hitler's "Mein Kampf".
"We have had enough of the Islamization of society," he said, speaking in German to loud cheers from the crowd.
"Immigrants have to adopt our values, not the other way around."
He also insisted that "we don't hate Muslims, but they have to integrate" and demanded the reintroduction of border controls within the European Union.
More than 2,000 anti-fascist counter-demonstrators had rallied in the afternoon, away from the Pegida protest site which was blocked off by police.
Pegida marches, which have also targeted "criminal asylum seekers”, mainstream political parties and the media, began with several hundred supporters last October and peaked in January, just after the deadly Islamist attacks in Paris.
But the weekly Monday rallies have since waned to several thousands following internal splits, after an outcry sparked by its founder Lutz Bachmann posting pictures on Facebook of himself looking like Adolf Hitler.
Wilders, 51, who heads the Party for Freedom, was again accused of inciting racial hatred after pledging last year to ensure there will be "fewer Moroccans" in the Netherlands.
The German integration commissioner, Aydan Ozoguz, had warned citizens against attending the Pegida event, saying that by inviting Wilders the group had shown its true extremist colours.
"Anyone who still marches behind their flag is joining an openly far-right movement," Ozoguz told the Die Welt.
Saxony state Interior Minister Markus Ulbig said: "This is not a good day for Saxony. With Geert Wilders they have invited a person who has hate inside him, who is divisive".
Dresden police declined to provide a crowd estimate for the event.