Only 28 minutes of "The Eternal City" remain. The reels of the silent film were found by student Giuliana Muscio at New York's Museum of Modern Art.
The film, produced by Samuel Goldwyn, stars Lionel Barrymore - great uncle of Hollywood actress Drew Barrymore - who plays the role of a Communist villain.
The film shows Mussolini reviewing troops and in his office. It was screened at a silent film festival in the northeastern town of Pordenone.
"The Eternal City" was filmed less than a year after the March on Rome paved the way for Mussolini's Fascist party to come to power in Italy, which was then a kingdom.
The George Fitzmaurice directed film portrays Mussolini as a leader who saves his people from the scourge of communism.
"The fascist parades appear to have been staged for the big screen and at this time Mussolini was a popular hero," Muscio said in a statement.
The film ends by showing Mussolini in his office at the Palazzo Venezia.
The dictator had been a fan of Hollywood and invited several stars to visit him, including Jackie Coogan, the child star of Charlie Chaplin's "The Kid" as well as Douglas Fairbanks and Mary Pickford, Hollywood's best-known star couple at the time.