The trial is being held in Jerusalem but Milchan's testimony was taking place in Brighton, which is close to where the 78-year-old is presently based, on request of the prosecution. The testimony is expected to last several days.
Prosecutors allege that Netanyahu wrongfully received almost 700,000 shekels ($A290,000) worth of gifts from Milchan, and from an Australian fellow-billionaire, which the indictment describes as a "supply-line" of champagne and cigars.
The prime minister has denied any wrongdoing in this case and two other cases that are being heard in the same trial.
Netanyahu is accused of helping Milchan with his business interests and with US visa status. The prime minister has described the gift-giving among friends as normal conduct and his trial as a political witch-hunt.
Milchan hinted at a deeper, patriotic cast to the relationship. "I can't tell you how many things Bibi and I did in secret for the country," he said in his testimony, using Netanyahu's nickname.
When the prime minister arrived at the Jerusalem court to watch from afar, Milchan greeted him off-screen with "Shalom, Bibi!"
Criminal probes against Netanyahu, now in a record sixth term as premier, began in 2016 and set off years of political turmoil in Israel.
After a cycle of inconclusive elections and an 18 month-stint in the opposition, Netanyahu returned to power in December at the head of a hard-right government.
Netanyahu has denied any link between his trial and reforms to the justice system that his coalition is seeking and that have drawn strong opposition.
He has been indicted on charges of bribery, fraud and breach of trust for allegedly granting regulatory favours to businessmen in return for positive favourable media coverage.
