The island looks set to become the first place in Asia to legalise gay marriage after the constitutional court said in May that laws preventing same-sex unions violated the guarantee of freedom of marriage.
It gave the government two years to implement the decision.
The anticipation was felt in Saturday's parade, as dancing crowds in colourful wigs and sequined outfits made their way through the capital's centre alongside vans blasting music.
But behind the celebrations, some are frustrated at the lack of progress in changing the current marriage laws since May.
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"A lot of people cannot afford to wait two years," said Joseph Wu, 46, dressed in a matching kilt and rainbow turban with his partner of six years.
"We just want the same things heterosexual couples have. We also do our military service, we pay the same taxes, so why can't we have the same thing?" he said.
"We are the same. We also want to start our own families," he told AFP.
Gay rights activists expressed frustration last month when a Taipei administrative court rejected a request from a lesbian couple to marry, saying they can only register when relevant laws are in place.
Still, Taiwan is seen as one of the most progressive societies in Asia when it comes to gay rights.
He was dressed as a Chinese empress in a strapless full-length gold gown, which he says he would not dare to wear in Hong Kong.
"Hong Kong is more conservative, maybe because of China's influence," Chan, 35, told AFP.
"Only when I'm in Taiwan can I dress like this and not be afraid to express myself.
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