They are voting on proposals to ease controversial rules restricting assisted fertility. A 50% turnout is needed for the law to be changed.
Feelings are running high over the Church's right to influence people's political as well as moral choices.
The current law is among the most restrictive in Europe.
It was passed by Prime Minister Silvio Berlusconi's centre-right government last year.
Women's groups and Italy's Radical Party have collected four million signatures to force the referendum on whether to ease the rules.
the rule that only three embryos per treatment can be created, all of which have to be implanted at the same time. The law was drafted and passed amid concerns that Italy had become one of the world's most liberal countries regarding assisted fertility.
Controversial cases that fuelled the debate included that of a 62-year-old woman who gave birth after fertility treatment.
But critics say Italy has now the most restrictive legislation in Europe, forcing infertile couples to seek treatment abroad and thereby discriminating against poorer couples.
'Interference'
Newly elected Pope Benedict XVI last month congratulated Italian bishops on their decision to urge people to boycott the referendum.
But those who are trying to get the law changed say it is an unwelcome and unwarranted interference by the Vatican in Italian domestic politics.
"The Catholic Church has every right to spread its word, to send out its message, of course," said Daniele Capezzone, secretary of Italy's Radical Party, a leading promoter of the current referendum.
"But we cannot allow the legitimate moral convictions of some to result in others being forced or forbidden to do certain things."
Fence-sitting
Many top politicians have failed to speak their mind on the issue, choosing to be cautious in order not to alienate the Catholic electorate and the Vatican.
Mr Berlusconi has not indicated whether and how he will vote, and opposition leader and former EU Commission President Romano Prodi has only said he will vote, without specifying which way.
Foreign Minister Gianfranco Fini, who also leads the right-wing National Alliance, has been one of the few to take a clear stand, saying he will vote "Yes" to the majority of the proposed changes.
He has created a split within his own party and attracted fierce criticism.
Nobel prize laureate Rita Levi Montalcini and other high-profile Italian and international scientists have urged voters to ease the legislation.