The 51-year-old was arrested on August 20 while travelling from York to Newcastle and last month British Transport Police said he had been charged with one count of sexual assault by touching.
The alleged incident was said to have happened at Darlington and was to have involved him kissing a woman over the age of 16 on a train.
District Judge Kristina Harrison, sitting at Peterlee Magistrates’ Court, asked if alternatives to the charge had been considered.
She said: “The prosecution have considered the charge and have subjected it to review and at the present time the prosecution are satisfied sexual assault is the appropriate charge?”
Jolyon Perks, prosecuting, replied: “Yes.”
Gascoigne, who played for Newcastle United, Spurs, Lazio, Rangers, Middlesbrough and Everton, among other clubs, entered a “not guilty” plea in a clear voice.
He had earlier spoken to confirm his name, age and address.
The alleged offence can be dealt with by either magistrates or a judge and jury and Gascoigne elected for a Crown Court hearing.
He had previously protested his innocence on Twitter, saying he had stepped in to comfort a woman after she was called a “fat cow”.
Following a seven-minute hearing on Tuesday, Gascoigne, living in Leicester, was granted unconditional bail to appear at Teesside Crown Court on January 8.
The former star arrived in a black Mercedes minivan with at least three security staff and did not say anything as he arrived.
He was surrounded by photographers as he walked in to court.
As he left the courtroom, a woman in the waiting area asked Gascoigne, who was wearing sunglasses, a blue suit, a pale blue shirt and brown and cream shoes, for a selfie.