Thackeray, 86, died Saturday from cardiac arrest after suffering from breathing problems and pancreatic disease.
Mourners lined the streets leading from Thackeray's Bandra home to Shivaji Park, where his youngest son, Uddhav, lit the funeral pyre, Press Trust of India reported.
More than 20,000 police officers were deployed in the city to keep the peace, and officials warned residents to drive only in an emergency as throngs of people filled the streets. Marketplaces were shut down and taxis stopped operating for the day.
Thackeray was blamed for aggravating tensions between Hindus and Muslims during riots two decades ago in Mumbai, the BBC reported, although he was never convicted of any wrongdoing in the riots.
Thackeray founded the political organization Shiv Sena with the purpose of favoring indigenous residents of Maharashtra state over migrants and to stall the spread of Islam.
Survivors include sons Jaidev and Uddhav.