"The Blue Caftan" tells the story of Halim and his wife Mina, a couple who make and sell traditional robes in one of Morocco's oldest souks.
"The Blue Caftan" is set in Sale, a picturesque city next to the capital Rabat.
It features Palestinian Saleh Bakri as Halim, Belgian actor Lubna Azabal as Mina and Moroccan Ayoub Missioui in the role of Youssef, the apprentice.
Their relationship is rocked by the arrival of a handsome young apprentice -- and Halim's attraction to him.
"I hope the film can contribute to nurturing a healthy, much-needed debate" about same-sex relationships, Touzani told AFP in a telephone interview.
"It pains me to see people living hidden away, in fear, with their love suppressed, denied and judged."
Touzani's second full-length work was among 15 shortlisted for the International Feature Film category ahead of the Academy Awards, with nominations set to be announced on January 24.
"It's a huge honor to represent Morocco and to carry the country's colors at this stage of the competition," said Touzani, 42.
She noted an official committee had chosen her film as the kingdom's Oscar entry -- an unexpected move in a country where consensual same-sex acts are punishable by up to three years' imprisonment.
Laws in other parts of the Middle East and North Africa can be even stricter.
"The fact that my film is representing Morocco is a step forward in itself," Touzani said.
"The symbolism is beautiful and strong -- it shows a desire for openness and dialogue."
Touzani expressed hope that mentalities in her country around LGBTQ issues would change.
"We often tend to put labels on love stories, but I really wanted to tell them without passing judgement," she said.
"It's by changing mentalities that laws can evolve. I believe love shouldn't be criminalised."
The film also delves into the generations-old art of tailoring the caftans traditionally worn by both men and women.
It "explores the love of a profession, that of the master tailor, which is disappearing", Touzani said.
"The Blue Caftan" was part of the Un Certain Regard section at Cannes this year, and shared the Jury Prize at November's Marrakech International Film Festival.
It is the second film representing Morocco to be shortlisted for the Oscars, after "Omar Killed Me" by French-Moroccan director Roschdy Zem.
The 95th Academy Awards will be held on March 12 in Hollywood.