The exercises sparked condemnation from Taipei and calls for restraint from Washington, which said it was "monitoring Beijing's actions closely".
Dubbed "Joint Sword", the three-day operation -- which includes rehearsing an encirclement of Taiwan -- will run until Monday, the People's Liberation Army's (PLA) Eastern Theatre Command said.
"I am a little worried; I would be lying to you if I say that I am not," said 73-year-old Donald Ho, who was exercising in a park on Sunday morning in Taipei, in the far north of the self-ruled island.
"I am still worried because if a war broke out both sides will suffer quite a lot," he told AFP.
China's war games saw planes, ships and personnel sent into "the maritime areas and air space of the Taiwan Strait, off the northern and southern coasts of the island, and to the island's east", the army said as it launched the exercises, engineered to flex Beijing's military muscles in front of Taiwan and the world.
A report from state broadcaster CCTV on Sunday said drills had "simulated joint precision strikes against key targets on Taiwan island and surrounding waters", adding that forces "continued to maintain the situation of closely encircling the island".
The write-up went on to say the air force had deployed dozens of aircraft to "fly into the target airspace", and ground forces had carried out drills for "multi-target precision strikes".
Taiwanese President Tsai Ing-wen immediately denounced the drills, which come after she met with US House Speaker Kevin McCarthy in California.
She pledged to work with "the US and other like-minded countries" in the face of "continued authoritarian expansionism".
In Washington, a State Department spokesperson said the United States had "consistently urged restraint and no change to the status quo", but noted it had ample resources to fulfil its security commitments in Asia.
The United States has been deliberately ambiguous on whether it would defend Taiwan militarily, although for decades it has sold weapons to Taipei to help ensure its self-defence.
Exercises on Monday will include live-fire drills off the rocky coast of China's Fujian province, about 80 kilometres (50 miles) south of Taiwan's Matsu Islands and 186 kilometres from Taipei.
"These operations serve as a stern warning against the collusion between separatist forces seeking 'Taiwan independence' and external forces and against their provocative activities," said Shi Yin, a PLA spokesman.
AFP saw no immediate signs of enhanced military manoeuvres on the northern coast of Pingtan, a Chinese island across the strait from Taiwan where the live-ammunition exercises will kick off on Monday.
On a roadside verge high above the ocean, Lin Ren blasted the Chinese national anthem on a loop as he sold cups of coffee from the back of his car.
"I think the current exercises serve as a way of putting pressure on Taiwan," the 29-year-old told AFP.
"I think they make it clear to them that we have the capabilities... to unify," he said.
Still, the drills were "largely symbolic", he said, adding: "I don't worry that there will be an armed conflict this time around."
China views democratic, self-ruled Taiwan as part of its territory and has vowed to take it one day, by force if necessary.
Taiwan's defence ministry said it had detected 18 Chinese warships and 129 aircraft around the island since the drills began on Saturday morning, adding Beijing has deployed a mix of fighter jets, drones, bombers, and transport aircraft.
On Saturday the ministry released a map showing 45 aircraft had crossed the median line separating Taiwan from mainland China -- the most incursions this year according to figures maintained by AFP.
Taiwan has been on high alert and said its forces "will be well-prepared and maintain solid combat readiness" while making sure not to "escalate conflict".
A video showing a Taiwanese coast guard patrol trailing Chinese warships was released by the Ocean Affairs Council on Saturday.
"You have seriously undermined regional peace, stability and security, please turn around and leave immediately," a coast guard officer warns by radio.
An AFP journalist saw Mirage 2000 fighter jets scrambling at the Hsinchu air force base in northern Taiwan on Sunday.
"The CCP (Chinese Communist Party) has continued to conduct military exercises around the Taiwan Strait and since this morning it has successively dispatched multiple batches of aircraft... as well as a number of ships in the area," the defence ministry said on Sunday.
The drills came hours after the departure from Beijing of French President Emmanuel Macron, who was in China to urge his counterpart Xi Jinping to help bring an end to the war in Ukraine.
In August last year, China deployed warships, missiles and fighter jets around Taiwan in its largest show of force in years following a trip to the island by McCarthy's predecessor, Nancy Pelosi.
Tsai returned to Taiwan on Friday after visiting her island's dwindling band of official diplomatic allies in Latin America, with two US stopovers that included meetings with McCarthy and other lawmakers.