The visually stunning animated film, which gets its festival screening on Thursday, blurs the line between humans and machines, dream and reality.
It is the sequel to the 1995 hit 'Ghost in the Shell', which has been credited with being a major influence on the blockbusting 'Matrix' films.
In the film ? which like its precursor, is based on a "manga" comic strip by Shirow Masamune ? cyborg detective Bateau follows the trail of android sex toys called gainoids which have been killing their masters and then self-destructing.
In exploring the morality of making androids with souls, the film poses challenging questions about the nature of humanity itself.
"As soon as they realize they have a spirit, they start to think of suicide," Oshii said of the gainoids in a recent interview with the Japan Times newspaper.
"They want to become fully human ? but they can't. That dilemma becomes unbearable for them. The humans who made them are to blame. They try to make a doll that is as human as possible ? but they don't think of the consequences."
Although it takes the form of a futuristic detective thriller with Bateau and his human partner Togusa investigating a series of murders, the film is essentially introspective.
"Bateau is a reflection of my own thoughts and feelings. 'Innocence' is a kind of autobiographical film in that way," Oshii told the paper.
"I'm not trying to make science-fiction. The film is set in the future but it's looking at present day society."
The use of both traditional two-dimensional animation and three-dimensional computer graphics (3DCG) to twist viewers' perceptions are among the film's visual effects that have drawn rave reviews in Japan, where the film was released in early March.
"When a dream sequence appears in a movie, most of the time the amount of visual information decreases. The outlines fade and things become abstract. What I wanted to do was the opposite," Oshii told the Yomiuri Shimbun newspaper in another interview.
"For the imaginary scenes, we used 3DCG in the background and made things as detailed as possible. So scenes of so-called 'reality' in Bateau's room are not as illustrated fully."
"What I want to show is that the border between fiction and reality is quite vague, so if viewers could simply feel comfortable that they were watching a dream, I would have been worried."
Jasper Sharp, associate editor at Japanese film review website MidnightEye.com, said Oshii's work goes beyond traditional Japanese "anime" and demands audiences think about their existence.
"People like Oshii are part of a very definitive school who are making films and trying to be as realistic as possible but at the same time asking, 'What does realism mean?'" Sharp told AFP.
"They're going away from that whole Disney-style anthropomorphism and into very detailed backdrops. They have that ability to really create another world," he said.
"He's using the medium to make an art film," Sharp said.
"He doesn't give you any real solutions. Again you don't know if it's dream, you don't know if its reality, virtual reality, who's real, what's not real. He leaves these things open."
"I think it's the sort of thing that Cannes jurors are going to really like," he said. "It's very postmodern and self-reflexive."
'Innocence' is one of two animated films out of 18 movies in competition this year, along with 'Shrek 2' from the Hollywood studio DreamWorks.
Cannes is belatedly recognising Japan's animated movie genre. In the 2003 Academy Awards, Hayao Miyazaki won the Oscar for best animated feature with 'Spirited Away', which a year earlier became the first animated film to win a Golden Bear award at the Berlin film festival.