It supports web browsing and video conferencing, has a three-hour battery life and two USB ports, but questions remain over how it will perform.
Officials hope the computer will give digital access to students in small towns and villages across India, which lags behind its rivals in connectivity.
At the launch in the Indian capital, Delhi, Human Resource Development Minister Kapil Sibal handed out 500 Aakash (meaning sky) tablets to students who will trial them.
He said the government planned to buy 100,000 of the tablets. It hopes to distribute 10 million of the devices to students over the next few years.
"The rich have access to the digital world, the poor and ordinary have been excluded. Aakash will end that digital divide," Mr Sibal said.
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The thing with cheap tablets is most of them turn out to be unusable”
Rajat Agrawal
BGR India
The Aakash has been developed by UK-based company DataWind and Indian Institute of Technology (Rajasthan).
It is due to be assembled in India, at DataWind's new production centre in the southern city of Hyderabad.
"Our goal was to break the price barrier for computing and internet access," DataWind CEO Suneet Singh Tuli said.
"We've created a product that will finally bring affordable computing and internet access to the masses."
The company says it will also offer a commercial version of the tablet, called UbiSlate. It is expected to hit the shelves later this year, retailing for about $60.
Despite a burgeoning tech industry and decades of robust economic growth, there are still hundreds of thousands of Indians with no electricity, let alone access to computers and information that could help farmers improve yields, business startups reach clients, or students qualify for university.
The launch — attended by hundreds of students, some selected to help train others across the country in the tablet's use — followed five years of efforts to design a $10 computer that could bridge the country's vast digital divide.
"People laughed, people called us lunatics," ministry official N.K. Sinha said. "They said we are taking the nation for a ride."
Although the $10 goal wasn't achieved, the Aakash has a color screen and provides word processing, Web browsing and video conferencing. The Android 2.2-based device has two USB ports and 256 megabytes of RAM. Despite hopes for a solar-powered version — important for India's energy-starved hinterlands — no such option is currently available.
Both Sibal and Datawind CEO Suneet Singh Tuli called for competition to improve the product and drive prices down further.
"The intent is to start a price war. Let it start," Tuli said, inviting others to do the job better and break technological ground — while still making a commercially viable product.
As for the $10 goal, "let's dream and go in that direction. Let's start with that target and see what happens," he said.
The students Wednesday were well-briefed on the goal of providing tablets for the poor, although most in attendance already had access to computers at home or in their schools.
"A person learns quite fast when they have a computer at home," said Shashank Kumar, 21, a computer engineering student from Jodhpur, Bihar, who was one of five people selected in his northern state to travel to villages and demonstrate the device. "In just a few years people can even become hackers."
India, after raising literacy to about 78% from 12% when British rule ended, is now focusing on higher education with a 2020 goal of 30% enrollment. Today, only 7% of Indians graduate from high school.
"To every child in India I carry this message. Aim for the sky and beyond. There is nothing holding you back," Sibal said before distributing about 650 of the tablets to the students.
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