Bringing charges against a former army chief is an unprecedented move in a country ruled for more than half of its life by the military and considered the single most powerful institution.
It is one of a series of cases that Musharraf has faced since returning from self-imposed exile earlier this year. He seized power in a bloodless coup in 1999 and was forced out in 2008.
"He was charged with murder, criminal conspiracy for murder and facilitation for murder," public prosecutor Chaudhry Azhar said on Tuesday at the anti-terrorism court in Rawalpindi hearing the case.
Musharraf, 69, who was bundled into the court amid high security, denied the charges and the case was adjourned until August 27.
He has been under house arrest at his plush villa on the edge of the capital Islamabad since April 19.
Officials had said threats against his life were too severe earlier this month for him to appear in court to face the charges.
"The charges were read out to him in the court. He denied the charges," said Azhar.
"The case has been adjourned until August 27 for evidence to be brought," he added.
Musharraf's legal team dismissed the indictment.
"These charges are baseless. We are not afraid of the proceedings. We will follow legal procedures in the court," his lawyer Syeda Afshan Adil told AFP.
Scores of security forces guarded the area around the court in Rawalpindi, the city where Bhutto was killed on December 27, 2007, and roads were sealed off for Musharraf's appearance.
The indictment follows lingering speculation about the possibility of a behind-the-scenes deal that could allow Musharraf to leave Pakistan without facing the courts and embarrassing the military.
Bhutto, twice elected prime minister of Pakistan, was assassinated in a gun and bomb attack after campaigning for elections that were won by her Pakistan People's Party in February 2008.
There was no public claim of responsibility for her murder.
Musharraf's government blamed the assassination on Pakistani Taliban chief Baitullah Mehsud, who denied any involvement. He was killed in a US drone attack in 2009.
The Bhutto case is one in a series of court battles that Musharraf has faced over allegations dating back to his 1999-2008 rule, since he returned in March from four years of self-imposed exile.
BA/BA