Mayor Ron Huldai launched the parade from Ben Zion Avenue, and the crowds headed to Charles Clore Park in the beach front promenade, where live shows and parties are expected to go on until 7pm.
Leading the parade is Hollywood star Neil Patrick Harris, whose presence in the city has sparked selfies and excitement from fans.
Tel Aviv, which has just finished celebrating its successful staging of the Eurovision last month, marked the start of Pride Month with a mass wedding for same-sex couples protesting the draconian marriage laws in Israel.
The city embraces Pride Month every year, lining the streets – and sometimes even the crosswalks and town hall - with rainbow flags.
Avihu Mizan, Chair of the Tel Aviv Proud Center, said that "this year the parade is a massive party, but we remind people that still, trans women suffer violence at home and in the streets, and gay couples have to go abroad to adopt and encounter difficulties. There is still a long way to go before we have equality."