The festival comes less than a year after the Delhi High Court ruled that homosexual sex among consenting adults was not a crime, boosting an increasingly vocal pro-gay lobby in India that says the British-era law was a violation of human rights, and an impediment to fighting HIV/AIDS in a country blighted by it.
But the change in the law appears to have done little to alter society's dominant anti-gay views.
Bollywood actor Rahul Bose said: "It would be inconceivable for the mainstream cinema chain to do something like this only because attitudes takes time to change. People like... you hurl your body against the rock of intractability and stereotype and the rock moves...it does not seem like it's moving but five years later it moves. So congratulations."
Nitin Karani, a member of the organising committee, said that out of the many submissions, a panel of screening committee chose 110 films which they thought would be suitable for the Indian audience.
He also said that by exposing the mainstream society to the queer culture, they want to break the stereotype attached to the lesbian, gay, bisexual and transgender (LGBT) community.
Bollywood has generally shied away from openly gay themes, preferring to occasionally use homosexuality as a comic tool, and even then at the risk of inviting the wrath of right-wing fundamentalists.
"I think the film festival is great. It should have happened a long time ago. Mumbai is catching up with the rest of the world," said Peter, an audience.
The four-day festival will feature 110 films from 25 countries, including 27 from India, most of them short films in regional languages.
The festival will close with what could be termed Bollywood's first mainstream gay film, 'Dunno Y Na Jaane Kyon', whose makers are hoping for wider audience acceptance.
In Mumbai, the movies are being screened at two theatres - Alliance Franchise in Marine Lines and PVR in Juhu. (ANI)