The project is part of a $2.9 billion plan to build five submarines, delayed for years due to technical problems, officials said.
The country already has fighter aircraft and missiles capable of carrying nuclear warheads.
Experts say India is modernizing its armed forces and is focusing on improving its naval fleet with new ships and submarines to counter the strategic interest of China in the region.
China is India's biggest trade partner in Asia. But India, already wary of China's growing military might, fears its giant rival wants to strategically encircle India as Beijing continues to supply weapons to India's neighbors, Pakistan and Sri Lanka.
Last year's Mumbai attacks in which 10 gunmen arrived by the sea to kill 166 people also exposed glaring loopholes in its sea security.
"The sea is increasingly becoming relevant in the context of India's security interests and we must re-adjust our military preparedness to this changing environment," Prime Minister Manmohan Singh, said after launching the submarine for trials.
"We do not have any aggressive designs nor do we seek to threaten anyone. We seek an external environment ... conducive to our peaceful development and the protection of our value systems," Singh said at the southern port city of Vishakhapatnam.
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