World Bulletin / News Desk
President Joko Widodo in traditional clothes led the flag-raising ceremony at the presidential palace.
It was attended by a large number of state officials, clerics, tribesmen and diplomats.
The guests also wore traditional clothes, setting a new precedent for state events.
"We have a variety of customary clothing because our culture is diverse. This is Indonesia,” he said.
In his state address on Wednesday, Widodo invited the nation to fight terrorism, illegal fishing, and illegal drugs.
"We must sink foreign ships that are fishing illegally [in our waters] to protect local fishermen," he said.
Over the past three years, Indonesia has sunk at least 317 boats allegedly fishing illegally in its waters.
He asked the Indonesian people to be firm against drug dealers who destroy the lives of youngsters.
At least 14 drug inmates, most of them foreigners, have been executed since Widodo took office in 2014.
He warned the nation to be wary of radicalism that threatens the country's security.
Thousands of police officers are maintaining security during the celebrations.
Indonesians will also hold shrimp eating and palm tree climbing competitions across the country – as part of the celebrations for the day.
Indonesia, the most populous Muslim state, gained independence in 1945 from more than a century of Dutch rule.