Crimea is voting on whether to re-join Russia or stay with Ukraine - a referendum condemned as "illegal" by Kiev and the West but backed by Moscow.
Russian troops have taken de facto control of the majority ethnic-Russian region, and voters are expected to support leaving Ukraine.
Crimean Tatars are boycotting the vote, pledging their allegiance to Kiev.
Russia earlier vetoed a draft UN resolution criticising the vote - the only Security Council member to do so.
The US-drafted document was supported by 13 Council members. China, regarded as a Russian ally on the issue, abstained from the vote.
The US and EU have warned they would slap further tough sanctions against Russian officials if the referendum goes ahead.
Russia intervened in the Crimean peninsula by seizing control of government buildings and blocking Ukraine's troops at their bases after the fall of Ukraine's pro-Moscow President Viktor Yanukovych on 22 February.
However, the Kremlin officially denies deploying extra troops there, describing them as Crimea's 'NO COMMON VISION'
Polling stations across Crimea opened at 08:00 local time (06:00 GMT) and will close 12 hours later.
Voters are being asked whether they would like Crimea to rejoin Russia.
A second question asks whether Ukraine should return to its status under the 1992 constitution, which would give the region much greater autonomy.
Some 1.5m voters are eligible to cast their ballots, and the first results are expected to be released shortly after the referendum.
Ethnic Russians form a clear majority in the region (58.5%), and many of them are expected to vote for joining Russia.
Ahead of the vote, one woman - who was speaking on condition of anonymity - told the BBC: "We love (Russian President Vladimir) Putin and are for Russia.
"We are only for Russia. Why? Because we don't want fascists here," she added.
The woman was referring to the warnings by Putin that "fascists" and "far-right radicals" took over in Kiev after months of protests against Yanukovych. Ukraine denies the allegation as "blatant lies".
But there are also those who would like Crimea to stay part of Ukraine but with more local powers.
"In my opinion, Ukraine should have full autonomy so it can look after its own finances. There should be no pressure from the government. I favour independence," Serhiy Resehtnyk told the BBC.
The authorities in Kiev - backed by the EU and US - have condemned the vote as "illegitimate". They say a free vote is impossible under a "barrel of the gun".
The Ukrainian parliament has also voted to disband Crimea's regional assembly.
But Russian Foreign Minister Sergei Lavrov said on Friday that Moscow would "respect the will of the people of Crimea".
Speaking after marathon talks in London with US Secretary of State John Kerry, Lavrov admitted that both sides had "no common vision" on how to solve the crisis.
Lavrov said that Russia had no plans to invade south-eastern Ukraine, despite a massive military build-up on the border with its neighbour.
The US and the EU have warned that the Crimean vote violates international law and the Ukrainian constitution.
The Crimean region was part of Russia until 1954.
Russia's Black Sea fleet is also still housed in Crimea. But Moscow has signed agreements promising to uphold Ukraine's territorial integrity.