Taksim Square is the bustling commercial heart of the city and has also been the focal point for decades of protests, including the 2013 demonstrations against the rule of President Recep Tayyip Erdogan, then premier.
But it has long lacked a major place for Muslim worship, located in an area which in Ottoman times was the preserve of Europeans and home to several churches.
"It is pleasing that no one will have now to pray in the streets," Istanbul mayor Kadir Topbas said at the ceremony laying the foundation stone of the mosque, according to the Anadolu agency.
"Tourists who see the minarets of the mosque and the church will see how well we live together in this city."
The new mosque is expected to be finished in two years.
Turkey under Erdogan has in the last years gone on a spree of building mosques but the authorities say this is needed to satisfy the needs of its worshippers in the overwhelmingly Muslim country.
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