The decision by a court in Rawalpindi marks the first time Musharraf, or any former army chief in Pakistan, has been charged with a crime.
Musharraf, who took power in a 1999 coup and stepped down from office in disgrace nearly a decade later, now faces a litany of legal problems that have in many ways broken taboos on the inviolability of the once-sacrosanct military in Pakistani society. He is currently under house arrest in connection with one of the cases against him.
The retired general has been charged with murder, conspiracy to commit murder and facilitation for murder, said prosecutor Chaudry Muhammed Azhar. He did not specify what exactly Musharraf was accused of doing but prosecutors have previously accused him of failing to provide enough protection to Bhutto.
The former army commando appeared in person during the brief morning hearing, and pleaded not guilty, said Afshan Adil, a member of Musharraf's legal team.
"These are all fabricated cases. There is nothing solid in all these case," she said.
Bhutto was killed in 2007 during a gun and bomb attack at a rally in the city of Rawalpindi, the sister city to the Pakistani capital, Islamabad. Prosecutors have said that Musharraf, who was president at the time, failed to properly protect her.
Bhutto is the daughter of former Prime Minister Zulfikar Ali Bhutto, who was himself executed in 1977 after being deposed in a coup. His daughter is widely respected in Pakistan for her political commitment -- she was jailed multiple times -- and her condemnation of militancy and support for Pakistan's poor.
She returned to Pakistan under a deal with Musharraf allowing her to take part in upcoming elections, and his supporters point to the deal as proof that he had no objections to her return.
Her assassination set off a wave of protests across the country and helped propel her Pakistan People's Party to office and her husband, Asif Ali Zardari, to the presidency.
The judge set August 27 as the next court date to present evidence.
Musharraf returned to Pakistan in March after nearly four years outside the country and vowed to take part in the country's May elections. But he has little popular support in Pakistan and ever since his return has faced a litany of legal problems related to his rule.
Musharraf has repeatedly vowed that he returned to lead his supporters in the election and that he would clear his name of all charges. But many questioned why Musharraf decided to come back considering the legal problems he'd be facing and his almost non-existent popularity.
His return and legal troubles have put the military and newly elected Prime Minister Nawaz Sharif in a delicate position. Pakistan has undergone three coups since the country's inception in 1947, and the military is considered the most powerful institution.
The military's top leadership is not believed to have supported Musharraf's return from exile but they also would likely not want to see one of their own put behind bars or treated unfairly.
The case is also part of a strange changing of places for Sharif and Musharraf. It was Sharif who was deposed by Musharraf in 1999, and then forced into exile. But Sharif eventually returned to Pakistan, waited out five years in opposition and then led his Pakistan Muslim League-N to a resounding victory in the May 11 elections.
Sharif must tread carefully with the man who once put him in handcuffs. The new prime minister has his plate full of other problems and pushing aggressively for Musharraf's conviction could force a confrontation with the military that Sharif would prefer to avoid.
Musharraf has been confined to his house on the outskirts of Islamabad, and was brought to court Tuesday amid tight security.
In addition to the Bhutto case, Musharraf is involved in a case related to the 2007 detention of judges and the death of a Baluch nationalist leader. The government is also pursuing a treason case against him in connection with the judges' detention case.
Musharraf has faced threats from the Pakistani Taliban who tried to assassinate him twice while he was in office and vowed to try again if he returned.
Associated Press writers Rebecca Santana and Munir Ahmed in Islamabad contributed to this report.
Copyright 2013 The Associated Press.