A BBC producer in the Iranian capital, who was affected by the gas, described central Tehran as "total chaos".
He said "severe clashes" were taking place between protesters and police and there had been many arrests.
Iranian police have placed opposition leader Mir Hossein Mousavi under house arrest, his official website says.
It says the move is intended to block him from attending the rally in Tehran.
The BBC's Mohsen Asgari in Tehran says thousands of people defied the government ban and gathered in the city centre chanting "death to dictators".
Riot police and plainclothes police backed by the Republican Guards used tear gas to disperse the protesters, he adds, and many were arrested.
Other witnesses said police also fired paintball guns at demonstrators.
Internet blockedMr Mousavi's detention is the latest in a series of arrests of people linked to Mr Mousavi and fellow opposition leader Mehdi Karroubi, who is also under house arrest.
Several opposition groups had vowed to take part in the protest, although officials have banned the gathering.
Although Iran's establishment officially supports the Egyptian popular protests, it says the rallies are a "political move" by the two opposition leaders.
Authorities have stepped up security in the capital, blocked access to internet sites, and started jamming satellite news channels.
Analysts say Tehran is trying to stop opposition groups from using the Egypt rally as a means to re-ignite anti-government protests - last seen in December 2009 - against the disputed re-election of President Mahmoud Ahmadinejad.
In an unusual move, an activist climbed a tall crane in central Tehran on Monday morning and began inviting people to attend today's rally.
The protester was later arrested by police.
Also on Monday morning, Iranian police vans blocked the lane leading to the house of Mr Mousavi and disconnected his mobile phones and land lines, his website Kaleme.com said.
Last week, almost a dozen people close to Mr Mousavi were detained.
Both the Iranian government and the opposition have claimed credit for the recent popular uprisings in Tunisia and Egypt.
The government says the mass protests were inspired by Iran's 1979 revolution, while the opposition says it was its 2009 protests that encouraged the unrest.source
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