The Foyle Cup is now in its 25th year and has attracted a record entry of 310 teams.
An opening parade weaved its way through the city on Tuesday.
Foyle Cup chairman Michael Hutton said it was the biggest tourist event in Derry,
He said there were 310 teams, a festival of football for six days and 1,034 games.
Earlier this year, fears for the future of the tournament were raised after funding was cut by 50% by Tourism Northern Ireland.
The organisers had said that would prevent them attracting the same calibre of teams from abroad as in previous years.
They also argued that the event, which started out as an eight-team youth tournament in 1992, is worth almost Â£2m to the local economy.
"It's as big, if not bigger, than the jazz festival, the Halloween festival and indeed the maritime festival in terms of bed nights created.
"We have about 5,000 young people marching in a parade for the mayor's welcome at Guildhall Square today.
"It's great to see the pro clubs from England and Scotland, it's great to welcome our teams from New York. We have Landsdowne Bhoys here for the first time and Everton America."
Mr Hutton also welcomed greater involvement from the ladies teams.
"There's definitely been an increase in girls and ladies football.
"This year we have 28 teams in all, we're doing all we can to promote the development of girls and ladies football throughout the north of Ireland and Ireland in general and it's great to see."
The Foyle Cup tournament will be held at various venues in the north-west until 22 July.
Thousands of young footballers from all over the UK and Ireland are in Londonderry for one of Northern Ireland's biggest tournaments.