Tsang, 72, held the leadership post of chief executive for seven years from 2005 and is the highest-ranking Hong Kong official to face a corruption trial.
The case is set to send shockwaves through a city that has earned a reputation as one of the world's most open and transparent markets.
Wearing his customary suit and bow-tie, a somber-looking Tsang arrived hand-in-hand with his wife at the city's High Court over an hour before the hearing was scheduled to begin yesterday morning.
The charges pertain to the period when Tsang was chief executive.
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He is accused of failing to disclose his plans to lease a luxury penthouse in the neighbouring city of Shenzhen from a major investor in a broadcaster - which at the time was seeking a licence from the Hong Kong government.
Tsang allegedly approved the company's application for the licence, and also failed to declare that an architect he proposed for a government award had been employed as an interior designer on the flat.
He has previously said that he had "every confidence" he would be exonerated.
In 2012 he apologised for separate allegations that he accepted inappropriate gifts from business friends in the form of trips on luxury yachts and private jets.
The trial comes at a time when residents are losing faith in Hong Kong's leaders, as a string of high-profile corruption cases fuel public suspicions over cosy links between authorities and business leaders.
Critics blame the city's method of electing its leader - who is selected by a 1,200-strong electoral committee made up of representatives of special interest groups weighted towards Beijing.
"It is very dangerous and very difficult to remain independent from those... Groups," said Lam, a former investigator for the Independent Commission Against Corruption, the city's anti-graft agency.
"Tsang's case is just the tip of the iceberg," he added.
Hong Kong's unpopular current leader Leung Chun-ying also faces allegations of corruption over receiving a reported payment of USD 6.5 million from Australian engineering firm UGL before he took office.