Directed by Majid Majidi, the 171-minute, visually stunning film cost around USD 40 million, partly funded by the state, and took more than seven years to complete.
The crew of "Muhammad" included three-time Oscar-winning Italian cinematographer Vittorio Storaro, with the score devised by India's Allah Rakha Rahman, a double Academy Award winner for the Danny Boyle-directed blockbuster "Slumdog Millionaire."
Majidi has said the aim of his work, the first part of a trilogy, is to reclaim the rightful image of Islam, which he said extremists have wrongly made violent.
It takes us from the miraculous birth of the future prophet up to his teenage years, and is packed with miracles.
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In one scene, an army of tribesmen mounted on elephants charges the holy city of Mecca to heart-pounding music, only to be destroyed by a flock of crows hurling stones.
In another, intensely emotional scene, the boy heals his nanny with a touch of his hand.
"It was very moving for us," said Mahsa Rasoulzadeh, 40, accompanied by her mother and teenage daughter at Kourosh Cinema in west Tehran.
Abolfazl Fatehi, 21, who came to watch the film in a family group of seven, said he loved it.
"I think this film can be a starting point of research for those who don't know Islam," he said.
Mehdi Azar, a 25-year-old worker at the cinema, said "it's a long movie and that might seem a turn-off at first, but it's attractive enough to draw an audience. It was very attractive visually."
The first, "Muhammad, Messenger of God", was made in 1976 by Syrian-American filmmaker Moustapha Akkad.
It was a huge success with Shiite Iranians.
Forty years on, with its cost around 20 times higher than any other Iran-produced film, Majidi's effort has raised high expectations, not all of which have been met.
In order to "preserve the dignity" of the prophet, "Muhammad" was excluded from competition in Iran's major Fajr festival in February and was instead showcased in a separate showing.