Thursday's launch ceremony in the port city of Kaohsiung was presided over by President Tsai Ing-wen.
US authorities have issued warnings that China may be able to launch an invasion within the foreseeable future.
Taiwan is a self-governing island that China views as a province gone rogue and has promised to one day recover.
As Beijing has stated it favors peaceful "reunification" with Taiwan, the majority of analysts do not anticipate China attacking the island anytime soon.
However, it has also issued a warning against Taiwan publicly announcing its independence and receiving any outside assistance. It has stepped up its military exercises in the Taiwan Strait, including four this month, in an effort to exert pressure on the island.
As she stood in front of the enormous submarine covered in the Taiwanese national flag's insignia, Ms. Tsai remarked, "History will forever remember this day."
A domestically produced submarine was formerly thought to be "an impossible task... but we did it," she continued.
Taiwan's authorities have long made building their own submarines a top priority, but under Ms. Tsai, who increased military spending to almost treble its budget, the initiative accelerated.
According to military sources, the $1.54 billion (£1.27 billion) diesel-electric submarine will go through a number of tests before being given to the navy at the end of 2024.
It was given the name Haikun in honor of a giant, legendary fish with wings that appears in ancient Chinese literature.
One more is currently being produced. Taiwan plans to eventually run a fleet of 10 missile-equipped submarines, including two older Dutch-built vessels.
The aim, according to Admiral Huang Shu-kuang, leader of the domestic submarine program, was to thwart any Chinese attempts to encircle Taiwan for an invasion or impose a naval blockade, he told reporters last week.
Additionally, he continued, it would buy time until US and Japanese soldiers arrive to support Taiwan's defense.
"No amount of weapons [Taiwan's ruling] Democratic Progressive Party buys or makes can stop reunification with the motherland," he continued.
The idea was described as "just an illusion" and Taiwan was "daydreaming" in an article by the state-run Global Times earlier this week.
Additionally, it stated that "a multidimensional anti-submarine network has already been constructed all around the island" by the Chinese military.
Observers concur that Taiwan's defense could benefit from the new submarines.
Taiwan's fleet of 10 submarines would be dwarfed by China's, which is estimated to have more than 60 vessels, including nuclear-powered attack submarines, and is expected to grow.
However, the island has long adopted an asymmetric warfare strategy in which it seeks to create a more adaptable defense force in order to contend with a stronger and more resourceful adversary.
With their stealth, lethality, and surprise abilities, the submarines could "help Taiwan's relatively small navy in taking initiative against China's mighty navy," according to William Chung, a military researcher with the Institute for National Defense and Security Research in Taiwan.
He specifically mentioned how they could assist in securing the numerous straits and channels that connect the so-called "first island chain," a collection of islands that includes Taiwan, the Philippines, and Japan and is thought to be a potential front in any fight with China.
Taiwan has the opportunity to take advantage of the Chinese navy's continued weakness in anti-submarine warfare, he noted.
However, Drew Thompson, a visiting senior research fellow at the National University of Singapore and a former US Department of Defense official, pointed out that the "centre of gravity" for any naval conflict between China and Taiwan would not likely be in the deep waters off the island's east coast, where submarines would be most effective.
Instead, the shallower waters off China's west coast would serve as the primary battleground.
The greater capability to impede China's military operations would have an impact, but not a significant one, according to him. "The submarine is not optimized for a counter invasion role," he said.
How Taiwan decides to use them will determine how effective they are.
According to Chieh Chung, a defense researcher with Taiwan's National Policy Foundation, they could be used in addition to serving as a deterrent to ambush Chinese ships, conduct mine-laying operations in Chinese ports, disrupt maritime oil supplies, and destroy important facilities along the Chinese coastline.
The fact that Taiwan was able to create and construct its own submarine is, however, of greater significance.
The US-manufactured torpedoes carried by the Haikun are part of a fighting system made by Lockheed Martin, a US defense contractor. Despite the fact that the US is Taiwan's main ally, at least six other nations, including the UK, reportedly helped Taiwan by providing parts, technology, and talent, according to a Reuters story.
Adm Huang revealed to Nikkei Asia that he personally requested assistance from military contacts in the US, Japan, South Korea, and India, but he did not say which nation ultimately consented.
According to Mr. Thompson, the fact that numerous nations and businesses "were not afraid to supply parts to a marquee defense programme in Taiwan... indicates a significant geopolitical shift."
According to Mr. Chieh, it is a sign of the "doubt and dissatisfaction" that some members of the international community have for Beijing and "should cause China to feel uneasy."
The launch occurs a day after Beijing acknowledged that military exercises had been held this month to "resolutely combat the arrogance of Taiwan independence separatist forces."
It had recently increased its military jet intrusions into the airspace surrounding the island as well as its vessel presence in the Taiwan Strait.
Various time frames for a potential Chinese invasion have been provided by US military and intelligence authorities.
One date that has lately been mentioned is 2027; it is thought that Chinese President Xi Jinping ordered his troops to be ready to launch an invasion by that year.
However, CIA director William Burns added that it was not a given that Mr. Xi would choose to invade at that time because he is rumored to be unsure about China's chances of success.