Simon John Dunham, 50, allegedly committed the act on an Emirates flight from Dubai to Sydney about midnight on April 27.
Following an investigation, police charged Dunham in June with one count of committing an act of indecency without consent.
During a brief hearing at Sydney's Downing Centre Local Court on Monday, a not-guilty plea was entered on Dunham's behalf.
After receiving a complaint from a passenger, flight crew alerted Australian Federal Police officers, who were waiting for the aircraft's arrival in Sydney.
Officers investigated the claims, including interviewing passengers and airline crew, according to an AFP statement.
Dunham attended the AFP office at Sydney Airport on June 10 and was issued a court attendance notice.
AFP acting Sydney Airport commander Dom Stephenson said all travellers had the right to feel safe and not be subjected to offensive behaviour.
"When travelling through the airport and when on a plane, people are bound by Australian law and where there is evidence that someone has committed a criminal offence, the AFP will take action," he said.
"The AFP is committed to supporting airport staff and aviation partners and will continue to protect law-abiding Australians while maintaining zero tolerance for inappropriate behaviour."
The matter is due to return to court on September 10.
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