The US is seeking to extradite Dotcom, and three of his colleagues, for alleged copyright infringement, racketeering and money laundering.
In 2012 authorities raided German-born Dotcom's Auckland home and shut down his site Megaupload.
The site once had million of users storing files and downloading movies and songs.
US authorities say Dotcom and the other executives cost film studios and record companies more than $500m (Â£322m) and generated $175m by allowing users to store and share copyright material.
In order to trigger an extradition treaty between the US and New Zealand, the prosecution must prove that a crime was committed in both countries.
The hearing, to which Dotcom brought his own chair for ergonomic reasons, is expected to last weeks.
"This case is not just about me. This case is about how much control we allow US corporations and the US government to have over the Internet," he said on Twitter before proceedings began.
The long-awaited extradition hearing for internet entrepreneur Kim Dotcom has begun in Auckland, New Zealand.