Prime Minister Benjamin Netanyahu, who voted just after midday on Tuesday, faces an array of parties seeking to oust Israel's longest-serving premier from power.
Opinion polls have suggested a tight race with his main rival, former military chief Gadi Eisenkot.
More than seven million people are eligible to vote, and tens of thousands have reportedly arrived from overseas.
"This is a very moving and fateful moment. My wife and I are truly overwhelmed," Netanyahu said after voting.
"We know what is at stake, and since I am not allowed to say things explicitly, I will say: vote correctly."
Inside Israel, the race is largely about security and who should serve to defend the country.
Outside Israel, it's mainly about the country's reputation - and the security of Jewish people worldwide - after growing criticism over the war in Gaza and Jewish settler violence in the occupied West Bank.
Almost 17 per cent of Israelis voted in the first three hours, the highest turnout by that point since 1981, according to initial figures by the Central Elections Committee.
There is a chance that neither Netanyahu's religious and ultranationalist coalition nor the group of parties hoping to remove him has enough support for a majority, which could set off weeks of negotiations before a leader is declared.
Israel's Arab-led parties could emerge as kingmakers if other parties agree to join forces with them.
"Our vote will change the government," Mansour Abbas, head of the Islamist Ra'am party, said while voting, adding that he hoped turnout would surpass 70 per cent in Arab communities.
Israel's far-right national security minister, Itamar Ben-Gvir, known for taunting Palestinian detainees and saying some Palestinians in Gaza are "not even people", warned that "it will be Mansour Abbas' government" if Netanyahu and his allies do not win.
The election is Israel's first national vote since the October 7, 2023, attack that sparked the war in Gaza and related conflicts.
Eisenkot early on Tuesday visited communities attacked on October 7.
"If someone in the government had a shred of responsibility, they would start the morning here" in the communities near Gaza, he said.
The vote serves not only as a referendum on Netanyahu's leadership but also on what kind of country Israel should be - heavily influenced by religious and nationalist forces, or more firmly anchored in liberal and secular values.
Israel has found itself increasingly isolated over its conduct in Gaza and the West Bank, with public support among Americans plummeting and partners in Europe and elsewhere slapping sanctions on Israel.
Also hanging over the election are lingering tensions with Iran.
Netanyahu ramped up threats before the vote, warning Tehran it would face "a devastating blow" if it attacked Israel.
Netanyahu's supporters see him as a steady hand and a consummate statesman who they believe has triumphantly guided Israel through multiple wars.
They think he is protecting Israel's Jewish identity while keeping in check what they see as an interventionist judiciary.
His Israeli detractors see him as a polarising leader who, beset by an ongoing corruption trial, dragged on the war in Gaza and its hostage crisis for political reasons.
They say he is undermining Israel's independent judiciary and weakening its democratic underpinnings.
Eisenkot is viewed by supporters as a capable leader with sterling security credentials who, along with his likely governing partners, could act as a bulwark against creeping illiberalism.
As someone personally touched by the conflict - his son and two nephews were killed in Gaza - his backers believe that he feels deeply the pain that still courses through Israel.
Parties that likely would support Eisenkot have vowed to improve Israel's international standing and work to conscript ultra-Orthodox men while bolstering the independence of the judiciary.
