For the past two years, the Mardi Gras parade was held at the Sydney Cricket Ground due to the Covid-19 pandemic.
The Parade's return to its spiritual home of Oxford Street comes as Sydney also hosts World Pride for the first time.
Albanese, who first marched in the parade in 1983, told the media the parade is "a great example of what an amazing country this is."
"Everyone should be respected for who they are and tonight's a celebration of that."
The 45th edition of the Mardi Gras featured 200 floats with more than 10,000 marchers. An indigenous smoking ceremony kicked off celebrations before the motorcycle club 'Dykes on Bikes' revved up the crowd.
"It's a night of celebration of our community and how proud we are," said parade participant Jocelyn Williams.
The Mardi Gras began in 1978 as a protest march for gay rights and the decriminalisation of homosexuality. It's since grown into a major tourist spectacle as Sydney's biggest street party and a major focal point for Australia's LGBTQI+ community.
Sydney World Pride 2023 runs for 17 days until March 5.
Reuters