Launched ahead of Diwali, the AR filter is inspired by mandalas, diyas, festive lights and colours.
Once you open the Effects Gallery, you can look for the effect using the "festive diya".
The effect is available in seven languages -- English, Hindi, Marathi, Bengali, Tamil, Telugu and Urdu.
"Instagram is a cultural hub and a place where people can freely express themselves. As celebrations go virtual, we continue to innovate with features and updates that help people during the festivities," said Manish Chopra, Director and Head of Partnerships, Facebook India.
"We look forward to the AR effect being used during all upcoming festivals."
The Facebook-owned app also announced a host of IGTV shows with creators such as Shirley Setia, Kusha Kapila and Arjun Kanungo.
The IGTV shows feature original content focussed on the creator and their passions.
Recently, Instagram also launched a few AR filters, gif stickers and content programming for Durga Puja.