Hudson performed a sombre version of 'I Will Always Love You' - which Parton wrote - at the music industry gala on Sunday (February 12) in honour of Houston, who was found dead at the Beverly Hilton Hotel one day earlier.
Parton has now commented both on Houston's death and the emotional Grammy tribute, saying she was deeply moved that Hudson changed the final lyric "I Will Always Love You" to "Whitney, we will always love you".
"I was brought to tears again last night, as I'm sure many were, when Jennifer Hudson sang 'I Will Always Love You' on the Grammys in memory of Whitney," Parton said in a statement. "Like everybody else, I am still in shock. But I know that Whitney will live forever in all the great music that she left behind."
The country music star continued: "I will always have a very special piece of her in the song we shared together and had the good fortune to share with the world. Rest in peace, Whitney. Again, we will always love you."
Parton first released 'I Will Love You' as a single in 1973. Houston's cover version of the song for The Bodyguard soundtrack was a US No.1 hit for 14 weeks in 1992.
Mariah Carey, Christina Aguilera, Simon Cowell, Cher and Justin Bieber have all memorialised Houston in the days since her shocking death.
More Whitney Houston Coverage:
> Whitney Houston 1963-2012: Obituary
> Whitney Houston: A life in pictures
> Whitney Houston: Greatest musical achievements - pictures
> What is Whitney Houston's best song? Poll
> Clive Davis dedicates pre-Grammy party to Whitney Houston
> Whitney Houston to dominate singles, album charts next week
> Bobby Brown: "I love you, Whitney"
Watch Whitney Houston perform 'I Will Always Love You' at the Arista 25th Anniversary Concert below: