More than 30,000 US troops, including most of those based in the South plus 3,000 from overseas, are taking part in the drill known as Ulchi Freedom Guardian which ends on Aug 31, the US forces said in a statement.
Seoul's defence ministry could not say how many South Korean troops were taking part but Yonhap news agency put the number at 56,000.
The drill does not involve field training and is largely a computer-simulated exercise, with troops staying at their normal bases.
US and South Korean forces insist it is defensive while the North on Monday called it a drill for a preemptive nuclear attack.
Pyongyang "will bolster up its war deterrent for self-defence to cope with the reckless moves of the US and the south Korean puppet regime for a nuclear war", said ruling party newspaper Rodong Sinmun, using a phrase referring to its nuclear weaponry.
General James Thurman, commander of the 28,500 US troops based in the South, called Ulchi Freedom Guardian "a key exercise in strengthening the readiness of Republic of Korea (South Korean) and US forces".
On the eve of the exercise, the North's leader Kim Jong-Un visited a frontline artillery unit which carried out the deadly 2010 bombardment of a South Korean island near the disputed western sea border.
Kim praised its personnel as heroes and told them never to tolerate enemy aggression, the North's official news agency reported Saturday.
The two Koreans have remained technically at war since their 1950-53 conflict ended in an armistice, without a subsequent peace treaty.
Cross-border tensions have been high since the South accused the North of torpedoing one of its warships with the loss of 46 lives in Mar 2010.
The North denied the charge but shelled the border island in November that year, killing four South Koreans.
About 20 activists gathered outside the biggest US army base in Seoul's Yongsan district to protest at the exercise, displaying banners reading "Stop UFG (Ulchi Freedom Guardian)!" and "Sign Peace Treaty".
"This is a war game and a physical threat to the North," they said in a statement, adding that the drill heightens tensions on the peninsula.