The stage adaptation, the first of Rushdie's 1988 novel, was premiered at the Hans Otto Theatre, known by the acronym HOT, in the city of Potsdam, south-west of Berlin. The script is by Germans, Uwe Eric Laufenberg and Marcus Mislin.
Police in Potsdam described the watch at the theater as a precaution, saying there had been no threats to the event. Some Muslims have been upset by the production, suggesting that insulting Islam was a gimmick to attract audiences.
Germany's various Muslim groups have differed in their reactions, with one group, the Central Council of Muslims, calling for calm.
Though Rushdie's content was "insulting" to Islam, "despite the common misconception, the majority of the world's Muslims have rejected censorship," Aiman Mazyek, secretary general of the multi-ethnic council, said on Friday.
German-born Mazyek, 39, a political science graduate, told Radio Multikulti, a station run by public broadcaster RBB, the subject matter had the potential to "insult religious people in general and Muslims in particular."
"These days, insulting Islam is often used to attract publicity," he said. "Sulking only played into the hands of those doing the insulting."
"I say we should pursue a critical and constructive dialogue," he said. "One should explain that freedom of opinion and the arts is a prime value, but our values do not extend to insulting what is sacred to a religion."
But Ali Kizilkaya, chairman of the Islamic Council of Germany, a mainly Turkish group, said the stage show was one of a series of increasingly frequent provocations that went beyond the bounds of ordinary debate.
"Evidently it is becoming the fashion to insult Islam," he said in remarks quoted on Friday by the newspaper Schweriner Volkszeitung. Freedom of the arts was "an important value" but the rule of respect also applied.
Germans have shown only slight interest in Rushdie's theme, the dilemmas of Indian expatriates in contemporary England, but have been fascinated by the scandal over the book and threats to assassinate the author in revenge for passages portraying the Prophet Mohammed.
In Potsdam, the two main Indian characters were played by Tobias Rott, as Saladin and the devil, and Robert Gallinowski, as Gibril and the archangel, whose interplay is the theme of the story.
The HOT website said a cast of 12 Germans was performing the world's first stage adaptation of a work about "the battle between modernism and anti-modernism" and it would include the controversial climax with "a prophet named Mahound."
Rushdie has frequently visited Germany and lectured at writers' conferences. Under a Shiite Iranian fatwa or edict issued in Iran in 1989, it was declared right to murder him. As a result, for many years he had police bodyguards.