India's supreme court ordered a retrial in April after key witness Zahira Shaikh said she had been forced to retract her testimony during the original trial, held in Gujarat, due to threats by Hindu hardliners.
The court ordered the retrial to be held in neighbouring Maharashtra state, of which Bombay is the capital.
Press reports on Monday said the main witnesses were being housed at a secret location to prevent intimidation.
Proceedings began with cross-examination of government officials as to the location of various buildings, including the Best Bakery in the Gujarati town of Baroda which was set ablaze by a Hindu mob during the rioting.
The 70-year-old father of Shaikh was among the 12 who died in the attack.
Human rights groups say at least 2000 people, mostly Muslims, were killed in revenge violence after an allegedly Muslim mob torched a train, burning to death 59 Hindus.
A subsequent inquiry found that evidence of who set the train ablaze was inconclusive.
BJP politician Narendra Modi is
accused of abetting the riots
So far, nobody has been convicted for the killings that took place during the riots that shook the state, known for its recent history of religious tensions.
Human rights groups have accused the Gujarat state government, led by the Hindu nationalist Bharatiya Janata Party (BJP), of turning a blind eye to the 2002 riots and even abetting the attacks on Muslims.
In February, the supreme court ordered federal protection for witnesses of the killings of Muslims in Gujarat after many said they feared for their lives.