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She made the comments at a rally in the city in 2010 when she was fighting for the leadership of the party.
Ms Le Pen's anti-immigration and anti-EU message is attracting increasing support in France.
Her party is hoping to win two French regions in December local elections.
It was during a campaign speech in Lyon in 2010 that Marine Le Pen spoke out about Muslims worshipping in the streets because mosques were full.
"I'm sorry, but some people are very fond of talking about the Second World War and about the occupation, so let's talk about occupation, because that is what is happening here," she told National Front supporters.
"There are no tanks, no soldiers, but it is still an occupation, and it weighs on people."
Outside court on Tuesday she insisted she had not committed any offence and questioned the timing of the trial.
"We're a month away from a regional election and this affair dates back five years," she told reporters.
This trial goes right to the heart of the National Front's revamped political campaign.
Under Marine Le Pen, the party has tried to "detoxify" its public image and distance itself from accusations of racism and anti-Semitism, but critics say its focus has simply switched to Muslims.
Not so, says the party leadership: their target is not Muslims per se, but Muslim extremists; those whose belief and behaviour threatens the "uni-cultural" France that Ms Le Pen envisages.
The FN has been treading a careful line between broadening its appeal to a wider section of voters, and voicing what it says are the legitimate concerns of France's "forgotten" working classes, eking out a precarious existence in the face of France's immigration policies and globalised economy.
The Lyon trial could deliver a vicious kick to Ms Le Pen's work on cleaning-up her party's image (and also to her own chances in December's regional elections); or it could provide another chance for the party to present itself as victimised by the French political system; pitted against remote, out-of-touch elites.
Marine Le Pen took over the FN leadership in 2011 and has since tried to steer the party away from its racist and anti-Semitic past.
Alarm at the party's rise has prompted President Francois Hollande to warn France not to take the risk of backing the far right.
"Don't play with this way of voting just to send a message, just because of unhappiness and anger," he told French radio. "For investors, for external trade, jobs and growth, there will be consequences."
The practice of Muslims praying in the streets was banned in Paris in 2011 after a political outcry.
Ms Le Pen was investigated for her public remarks and she was eventually stripped of her immunity from prosecution by the European Parliament in 2013.
Ahead of the trial, Ms Le Pen made clear that she would use the occasion to defend her right to freedom of expression.
She is accused of incitement to discrimination, violence or hatred towards a group of people because of their religious affiliation and if found guilty could face up to a year in jail and a fine of €45,000 (£33,000; $51,000).
The French Council of the Muslim Faith said her remarks had fed a climate of Islamophobia.