The 48-year-old digger driver -- who has been living in Austria for two decades and now holds Austrian citizenship -- is accused of attacking Serdari village with a large group of Bosnian Muslims in September 1992, months after the outbreak of the Bosnian War.
Prosecutors in the city of Linz said the "massacre" was carried out in revenge for the killings of Muslims by Serbian troops.
The suspect has denied any involvement in the incident and remains free.
In 2011, a tribunal in Sarajevo jailed four Bosnian Muslims for war crimes over the Serdari attack, in which 16 people aged between four and 60 were shot dead. The name of the Austria-based suspect appeared in connection with that case.
More than 30 witnesses are expected to take the stand during the Linz trial, set to last for several months.
They include two female survivors who identified the accused as one of the assailants in Serdari and as a resident from a nearby village.
"I recognised him by his voice and appearance," one of the women said in a statement, read out by state prosecutor Doris Fiala on Wednesday.
But the suspect's lawyer attacked the witnesses' ability to remember such details 23 years later and argued his client had no reason to take part in the attack.
"He has no motive for a retaliation against Serbs because all his relatives remained unscathed," defence lawyer Jürgen Nowotny told the court in Linz.
The 1992-1995 inter-ethnic war in Bosnia left some 100,000 dead and displaced about two million people, almost half of the country's pre-war population.
The conflict was part of several wars fought inside the territory of the former Yugoslavia until 2001, which would eventually lead to the breakup of the country.