Organised by Rugby Indian Communities with support from Rugby First and Rugby Borough Council, the free event includes music, dance, food, stalls, festive lighting, family entertainment and a lantern parade.
The event runs from 12 noon to 6pm and takes place in Market Place, High Street, Sheep Street and the Asda car park in front of the Swan Centre.
Diwali , the five-day Festival of Lights, is celebrated by millions of Hindus, Sikhs and Jains across the world. It is a festival of new beginnings and the triumph of good over evil and light over darkness, and for some also coincides with harvest and new year celebrations.
The festival always falls sometime between October and November, but the exact date varies each year as the Hindu calendar is based on the moon.
Cllr Ish Mistry, one of the organisers of the event and deputy leader of Rugby Borough Council, said: "Diwali is a very important annual celebration for the Indian community and I am delighted we are bringing it back into the heart of Rugby town centre again, where everyone will be able to join in the celebrations.
"The dancing, singing, drumming, food, lights and colourful procession, with Rangoli chariot and boards, will provide a fantastic atmosphere and amazing spectacle in the town centre.
"I would like to say a special thank you to the Indian Communities, Rugby First, Rugby Borough Council and all those taking part for their incredible support and bringing the event to life," Cllr Mistry added.
"Finally, I would like to wish everyone a happy Diwali."
Linda Lowne, Rugby First business director, said: "Rugby has an incredibly diverse community and it is great to see everyone come together to celebrate an event like this, as well as shine a light on the town centre.
"I would encourage everyone not only to come along and enjoy the event but also take the opportunity to support local town centre businesses who will be open on the day."