The plan would see 150 homes built, 37 refurbished and about 280 demolished.
The Department for Communities and Local Government ordered the hearing after deciding the plan for Toxteth "may conflict with national policy".
Liverpool mayor Joe Anderson said it was "patronising" for the government to tell residents what they need.
The three-week inquiry will hear from the city council, residents, the housing association Plus Dane and the charity Save Britain's Heritage (SBH).
A site visit will then take place to look at the extent to which the proposed development "is in line with Government policy on good design, enhancing the historic environment, bringing back empty homes and supporting healthy communities".
Following the decision to delay the planning process, Mr Anderson said it was "hugely frustrating and bitterly disappointing for the local community".
"Residents made clear in no uncertain terms that they backed what has been put forward," he said.
City councillor Ann O'Byrne said "the evidence was overwhelming to show that the condition of these properties is such that it would cost more to refurbish them than it would to build new ones".
The current proposal, which will see a small number of the houses saved from demolition, has been backed by residents organisation, Welsh Streets Homes Group (WSHG).
A spokesman for WSHG said that for "further houses to be spared, it would take a leap of faith", including a "change of heart" by the council and Plus Dane and the "approval of residents on the south end of the site [whose] existing walls are crumbling around them".
"WSHG wanted to avoid a public inquiry but since it is happening, we will be asking the inspector to encourage all parties back to the negotiating table in search of an agreement that would allow work to begin on site in 2015."
The housing association Plus Dane has previously warned that any delays to the scheme would "seriously jeopardise" the available funding.
Save Britain's Heritage, which owns a house in one of the streets, campaigned for the inquiry and wants more of the houses to be renovated, instead of demolished.
Jonathan Brown, from the group, said structural engineers had said the houses were "still solid and viable and estate agents still say that they could sell them".
Designer Tilly Hemingway, who is working on one of the houses in Madryn Street, said the homes had a lot of potential, which would be lost if they were demolished.
"It seems absolutely insane that you'd knock these type of houses down when they are perfect in terms of space standards and they're beautiful," she said.
The inquiry, which is set to run until 4 July, is due to deliver its findings in a report later in the year.
Campaigners supporting a £15m plan for Liverpool's Welsh Streets have protested outside the opening of a public inquiry into it.