Ratan Tata, the chairman of Tata Motors, has said he created the car to help Indian families stop using unsafe motorcycles and begin using safer cars.
"I observed families riding on two-wheelers, the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby," Tata said while unveiling the prototype in 2008.
"It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family."
However critics say the Nano could clog India's already crowded streets and add to pollution.
Rajendra Pachauri, the head of the United Nations' climate panel, said: "Every car that goes on the road is going to use road space. We're only adding to congestion."
Tata has dismissed fears the cheap car would bring more congestion and pollution, arguing the car would be better and far safer than most motorcycles on India's roads.
The launch comes several months after the originally scheduled debut date, following months of violent protests over the acquisition of farmland for the project.
The protests prompted the motor company to move its Nano factory from India's West Bengal state to Gujarat, a state considered more business-friendly.
But company officials have said it will take at least a year to complete the new factory, so Tata will only be able to produce a limited number of Nanos from its other car plants in India.