The beginning of the "Ulchi Freedom Guardian" exercise, which will last until August 29, came as Pope Francis led a mass for inter-reconciliation in Seoul at the end of the five-day trip to South Korea.
Although largely played out on computers, the drill involves tens of thousands of South Korean and US soldiers and is aimed at testing combat readiness for a North Korean invasion.
According to the South Korean Defence Ministry, this year's drill will, for the first time, simulate the response to a nuclear attack threat, using a strategy of "tailored" deterrence developed last year at annual South Korea-US defence talks.
North Korea has repeatedly called for the exercise to be cancelled, and last week its military joint chiefs of staff threatened to "mercilessly open the strongest ... pre-emptive strike" if it goes ahead.
South Korean officials said its military would be on a heightened state of alert during the exercise.
"If the North commits a provocative act, we would retaliate strongly", a high-ranking military official told journalists.
The Pope has urged the divided Koreas to unite as "one family, one people" in a spirit of mutual forgiveness
at a mass that coincided with the South Korea-US military drill.
"Forgiveness is the door which leads to reconciliation" although it may seem "impossible, impractical and even at times repugnant", the Pope said at a special mass for inter-Korean peace and reconciliation in Seoul.
"All Koreans are brothers and sisters, members of one family, one people," he said, as he wound up a five-day visit to South Korea.
The mass, in the capital's Myeongdong cathedral, was one of the most anticipated events of the visit, and South Korean President Park Geun-Hye was in the congregation.
The Pope's message was cloaked in a religious context and he avoided any overt political statement, with no mention of the repressive level of control exerted by the regime in Pyongyang over all religious activity.
"Let us pray, then, for the emergence of new opportunities for dialogue, encounter and the resolution of differences," he said.
At the very moment the Pope landed in South Korea at the start of his visit on Thursday, North Korea carried out a series of short-range rocket launches into the sea off its east coast.
In his first public comments on arriving, the Pope had stressed that peace on the divided peninsula could only be achieved through dialogue, "rather than ... displays of force".
The Catholic Church, like any other religion, is only allowed to operate in North Korea under extremely tight restrictions, and within the confines of the state-controlled Korean Catholics Association.
A recent report compiled by a UN Commission of Inquiry into human rights in North Korea concluded that practising Christianity outside the state-sanctioned church amounted to a "political crime".
"Today's mass is first and foremost a prayer for reconciliation in this Korean family," the Pope said.
