Protesters are angered by a $700m (£455m) payment made to his bank account from unnamed foreign donors.
It was discovered last month during a probe into alleged mismanagement at the debt-laden state fund 1Malaysia Development Berhad (1MDB).
Mr Najib has denied any wrongdoing.
Saturday's rally is expected to continue into Sunday. The pro-democracy group Bersih has also called for protests in the cities of Kota Kinabalu and Kuching on the Malaysian side of Borneo.
Kuala Lumpur authorities have rejected the group's application for a permit to protest and Malaysian police have declared the rallies illegal.
Security is tight: access to Kuala Lumpur's Independence Square has been blocked. Eyes will be focused on any possible army intervention.
At the last big rally in 2012, police used water cannon and tear gas to disperse protesters.
Estimates put the number of protesters in Kuala Lumpur at 50,000 to 80,000, though figures issued by the police suggested much lower numbers.
A carnival atmosphere, punctuated by music, vuvuzelas and political speeches, prevailed in the city centre.
The leader of Bersih, Maria Chin, said the protest was not anti-government.
"We don't want to topple the government but we want to topple corrupt politicians," she told the Malaysian Insider.
The demonstrations coincide with preparations for National Day on Monday - the former British colony's 58th anniversary of self-rule.
Mr Najib said on his blog he did not want a "provocation" to be triggered.
He said: "Whatever the disagreements or misunderstandings between us, National Day should not be a stage of political disputes."
