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Mr Sharif says he will not stand for election unless President Pervez Musharraf lifts the state of emergency.
Benazir Bhutto has now filed papers for three parliamentary seats.
There are signs that Gen Musharraf will step down as head of the army and be sworn in for another term as president this week.
Mr Sharif, who was toppled by Gen Musharraf in 1999, returned to Pakistan on Sunday after seven years in exile.
There were jubilant scenes as cheering supporters met him at Lahore airport.
He is expected to hand in his nomination papers in Lahore for January's general elections later on Monday, the closing date.
We have to save this country - we have to unite and get rid of dictatorship 
Benazir Bhutto, another former prime minister who recently returned to Pakistan, filed a nomination paper on Sunday for one of the seats reserved for women.
On Monday she filed papers in her Larkana constituency for two regular seats. She, too, has left open the possibility of a boycott.
Mr Sharif's return to Pakistan on Sunday was his second attempt in the past three months to end his exile. The last time, in September, he was deported within hours of his arrival.
The BBC's Syed Shoaib Hasan in Lahore says it is believed that Gen Musharraf is hoping that Mr Sharif will be able to dent Benazir Bhutto's prospects in the forthcoming parliamentary elections.
Correspondents say there are signs that the Ministry of Defence will soon officially announce that Gen Musharraf will step down as head of the army in the next few days.
He has come under intense international pressure to make the move before taking his oath of office for a second term as president.
Move against military
Nawaz Sharif told cheering crowds on Sunday that his return was "not the result of any deal" with Gen Musharraf, referring to reports that he had come home under an arrangement with the military ruler.
"My deal is with you, the people of Pakistan," he said. 
Mr Sharif also said that emergency conditions imposed by General Musharraf on 3 November were "not conducive" to free and fair elections.
Earlier, the former prime minister told the BBC by mobile telephone from his plane that it was unlikely that he would be able to work with Gen Musharraf, as his ultimate objective was to rid Pakistan of military rule.
"I am here to play my role and also make my own efforts to rid the country of dictatorship," Mr Sharif said.
Celebrations
He said boycotting the election remained an option if emergency rule was not lifted.
"When the constitution, fundamental rights are suspended, when people live difficult lives, when judges who make decisions according to the constitution are ousted, will elections in such a situation not be a fraud?" he said, quoted by the Associated Press news agency.
"Should not such elections be boycotted?" 
"Everybody can submit his nomination papers but the final decision will be taken by the APDM [All Parties Democratic Movement]," Mr Sharif told reporters at Lahore airport.
As Mr Sharif arrived at the airport, celebrating supporters broke through police lines, surrounding Mr Sharif and then lifting him onto their shoulders.
Thousands of people also lined the road from the airport to the city to show their approval.
Security was tightened in Lahore ahead of Mr Sharif's return.
Two bombings killed more than 130 people at a homecoming parade in Karachi for Ms Bhutto last month.
Ahead of his return, officials from Mr Sharif's PML-N party and police said PML-N supporters had been arrested across Punjab province, although it was not clear how many.
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