The 127 Hours actor, who recently split with girlfriend Ahna O'Reilly after five years together, explained that speculation about his sexuality began when he was a young boy.
Franco told Playboy: "I had a close friend in school, and there were rumours that we were gay.
"Those rumours were started by - who knows? - people who were jealous, people who had been picked on, girls who had been picked on.
"So they started these rumours. I like it now that people said I was gay. It's kind of cool."
The 33-year-old admitted that he doesn't expect rumours to stop anytime soon.
Franco added: "I have a film coming up that I directed about the poet Hart Crane, and I give a b**wjob in that movie."
Watch the trailer for Howl, in which Franco portrays poet Allen Ginsberg, below: