Officials said that the questioning started around 11.30 a.m. and is likely to continue for the next three to four hours.
Narasimhan was questioned as a witness in the case.
Narasimhan, 68, is the third governor to be quizzed in the case by the Central Bureau of Investigation (CBI), which previously questioned former Goa governor B.V. Wanchoo and former West Bengal governor M.K. Narayanan.
The agency interrogated Narayanan and Wanchoo last week as witnesses and they resigned soon after.
A CBI team from New Delhi reached Andhra Pradesh Tuesday to question Narasimhan.