The event, which bills itself as the world's biggest night parade, is celebrating the theme "Generations of Love", focused on its origins in 1978 as a gay rights protest march that ended with violence and arrests.
"Generations of Love is really about embracing love across the ages, how far we've come, celebrating what we have achieved and imagining and forging a brighter future," said the event's CEO Michael Rolik.
Some of the original activists, known as the "78ers", will take pride of place at the beginning of the parade, behind the traditional "Dykes on Bikes" motorcade which officially kicks off the colourful, often irreverent march.
Some 10,000 revellers on 115 individual floats will make the journey down Oxford Street, hub of Sydney's gay and lesbian nightlife, in a vibrant show featuring drag queens, political parodies and plenty of sparkle.
There will be an Aboriginal float, surf lifesavers will dance in their trademark briefs and yellow and red caps, and supporters of WikiLeaks will march in solidarity with whistleblower Bradley Manning, a gay US soldier.
Members of Australia's military will be allowed to march in uniform for the first time, and the leader of the nation's left-leaning Greens party, Christine Milne, will take part in the parade alongside her gay son.
"It's really important that opinion leaders stand up and say I'm here, I'm really proud of my son and proud to be walking with him," said Milne.
The Greens are key allies in Prime Minister Julia Gillard's minority coalition government, which has come under increasing pressure to legalise gay marriage.
The issue is likely to rear its head again in the lead-up to national elections, scheduled for September 14, and there are several floats dedicated to the cause.
Mardi Gras co-chair Siri Kommedahl said the parade -- Sydney's largest event behind the New Year's Eve fireworks, and a huge international tourist drawcard that brings Aus$30 million ($30 million) into the economy -- was as relevant as ever.
"We've come a long way since 1978, when the pioneers of our community took to the streets wearing costumes and carrying placards calling for rights and acceptance," said Kommedahl.
"So now, 35 years on, it's time to remember where we have been, look where we are going and take pride in how far we have come."