Lai's case is one of the most prominent prosecuted under the national security law imposed by Beijing in 2020, with Western countries and rights groups demanding his release.
The 76-year-old founder of tabloid Apple Daily is accused of colluding with foreign forces, a charge that could carry a sentence of up to life in prison.
The case centres around articles in the newspaper that supported huge, sometimes violent pro-democracy protests in 2019 and criticised Beijing's leadership.
On Wednesday, Lai insisted that "the core values of Apple Daily are actually the core values of the people of Hong Kong... (including) rule of law, freedom, pursuit of democracy, freedom of speech, freedom of religion, freedom of assembly".
He said he had entered the media business because "to participate in delivering freedom is a very good idea for me... The more you are in the know, the more you are free".
But he said he opposed violence and was not an advocate of Hong Kong independence, calling it "too crazy to think about".
Lai did not appear to be in ill health as he stood in the dock, flanked by four prison officers and waving to people in the public gallery.
His testimony comes with Hong Kong's political freedoms already under the spotlight after a court jailed 45 democracy campaigners for subversion in the city's largest national security trial on Tuesday.
'Deserves admiration'
Lai has been behind bars since December 2020, and concerns have been raised about his medical and jail conditions.
He has not opted to testify in any of his five previous cases, all of which resulted in convictions, including for organising and participating in marches during the 2019 democracy protests.
Outside the court in pouring rain on Wednesday, an 80-year-old retiree named Liu told AFP Lai "deserves our admiration".
"He has a lot of money, he could have left anytime, but he didn't because he felt a responsibility," Liu said.
Hong Kong and Beijing have rejected criticism of the case, condemning Lai as "a voluntary political tool of foreign forces trying to curb China through Hong Kong".
The case against him revolves around 161 articles published in Apple Daily as well as his own interviews and social media postings.
The newspaper was forced to close in 2021 after police raids and the arrests of its senior editors.
'Hostile activities'
Since the prosecution opened in January, it has alleged that on multiple occasions Lai asked the United States and other countries to impose sanctions "or engage in other hostile activities" against China and Hong Kong.
On Wednesday Lai was asked about his contacts with politicians and other figures from places including the United States, Britain and Taiwan.
Lai said he had met former US vice president Mike Pence in 2019 and asked the Republican to "say something in support" of Hong Kong.
But he insisted he hadn't asked Pence to take action, saying it was "beyond me".
Questioned if he had ever "communicated directly or indirectly" with then-president Donald Trump, Lai said no.
Last month, British Prime Minister Keir Starmer told parliament that Lai, who holds British citizenship, was "a priority" for his Labour government.
Starmer raised the issue in a meeting with Chinese President Xi Jinping on Monday.
Lai's son had previously said "much stronger" support from the British government was needed as Lai's health "could get much worse at any moment".
A legal team led by a senior British rights lawyer has filed a number of complaints to the United Nations concerning arbitrary detention and prolonged solitary confinement.
On Sunday, the Hong Kong government condemned the legal team for "spreading misinformation", saying Lai himself had requested to be kept apart from other inmates.
Robertsons, a Hong Kong law firm representing Lai in the trial, has also brushed off some of the allegations.
"Mr Lai wishes to make known that he has been receiving appropriate medical attention for conditions suffered by him, including diabetes," the firm said in a statement in September.
"He has access to daylight through the windows in the corridor outside his cell, albeit he cannot see the sky. He exercises for an hour every day in a secure area."
