It is the first time since the end of El Salvador's civil war 17 years ago, that the leftist opposition is within reach of the presidency.
Polling stations opened at 13:00 GMT and are set to remain open for 10 hours on Sunday.
At least 20,000 members of El Salvador's security forces have been deployed to maintain order during the election.
Election pledges
Funes, 49, worked for the CNN Spanish television channel and a commercial station in the capital, San Salvador. He covered the civil war, which ended in 1992, before becoming a host of one of the country's most popular television shows.
He has pledged to combat corruption and tax evasion, ease the burden of the global downturn with centre-left policies to help the poor, develop relations with the US and retain strong links with big business.
Avila, 44, a former army sniper, with close ties to business, says he is best qualified to handle problems associated with the global recession and argues Funes would turn the country into a Venezuelan socialist satellite.
Mariana Sanchez, Al Jazeera's correspondent in San Salvador, said both candidates were very well known in the country.
"Avila is a former congressman and was the chief of police for eight years. He confronted many different problems in the country, which has one of the highest murder rates in the world and huge gang problems.
"Funes is a different candidate. He never fought with guerillas during the civil war. He's much younger, a former journalist, and brought a fresh face to the FMLN party. He has a lot of respect here in El Salvador," Al Jazeera's correspondent said.
El Salvador, the most densely populated country in the Americas, is still recovering from the civil war, in which more than 75,000 people were killed, with many still missing, following 12 years of fighting between the army-backed government and the FMLN fighters.
El Salvador has been a close US ally and Arena supporters say an FMLN victory could affect the country's relationship with Washington.
A quarter of the country's population lives in the US and the tiny nation - Central America's smallest - relies heavily on remittances. About 4.2 million people are registered to vote.
The government estimates 40,000 immigrants in the US have come home to vote.