Williams entered the plea to first-degree manslaughter and other charges during an arraignment before Superior Court Judge Edward M. Coleman. He remained free on $270,000 bail.
If convicted on all charges, he could face nearly 45 years in prison.
A second man, John W. Gordnick, pleaded innocent to charges that he tampered with evidence to conceal Williams' role in the shooting.
Gordnick remained free on $50,000 bail, and faces a maximum sentence of nearly 12 years in prison.
Prosecutors originally charged Williams with second-degree manslaughter, which required them to prove only that he recklessly caused the limousine driver's death.
But a grand jury raised the charge last month, finding Williams demonstrated extreme indifference to human life.
First-degree manslaughter carries a maximum penalty of 30 years in prison. The maximum for the lesser charge is 10 years.
Williams' attorney, Joseph Hayden, has called the shooting "a tragic accident."
Limousine driver Costas Christofi was fatally shot Feb. 14 at Williams' estate in rural Alexandria Township. The 55-year-old driver was invited inside the mansion after picking up Williams' friends at a Harlem Globetrotters game in Bethlehem, Pa., prosecutors said.
Prosecutors say Williams was recklessly handling a 12-gauge shotgun when it fired, hitting Christofi in the chest.
They also accuse Williams, Gordnick and a third man, Kent Culuko, of trying to destroy or conceal evidence implicating Williams and asking witnesses to lie about what happened.
The three men allegedly tried to hide the clothes Williams was wearing when the gun went off, replace his fingerprints on the shotgun with the victim's, and convince other guests at the mansion to say Christofi was upstairs alone at the time of the shooting.
Culuko has pleaded guilty to witness and evidence tampering, and agreed to testify against Williams and Gordnick.
Williams retired from the New Jersey Nets in 2000.
After the shooting, he was suspended from his job as an NBA analyst for NBC.