At Swim, Two Boys is about as perfect a novel as I can think of. Stunning. I didn't like the author's earlier novel (whose name I can't even think of--and it's not so specifically "gay") nearly as much, but I hope we see something else from him.
My favorite living author is Alan Hollinghurst--I know some find his novels hard to get through and slow on plot, but I can't think of anyone currently who can craft a more beautiful sentence than he can. I'd recommend all five of his novels, but Swimming Pool Diaries, which has been mentioned is a good place to start.
John Updike did a review of Hollinghurst's The Spell (probably his slightest, but most funny novel) for the New Yorker where he bemoaned how unhappy gay lives must be, that got some attention--and seemed to miss the point completely (some of it can be read here
http://www.slate.com/blogs/browbeat/2011/10/12/john_updike_homophobia_alan_hollinghurst.html ). But I don't know any other current author whose work I feel so immersed in when I am reading their writing--Line of Beauty is probably his best known work (when it won the Booker one UK newspaper's headline was "Gay sex wins Booker"...sigh) and has a very good BBC adaptation that, while as good as I could possibly see it being, still misses how great the book is.
A Single Man has been mentioned, but it's my favorite of Isherwood's novels, and pretty amazing.
One author who I wish was better known is Paul Russell. All of his novels are worth reading, with The Coming Storm probably being his easiest to find, but Boys of Life being my favorite. His last book was The Unreal Life of Sergey Nabokov, loosely based on the few details we know of Nabokov's brother who was gay and ended up being killed in the concentration camps.
I actually didn't even know it had been published--his work is so hard to find out about--until I read Christopher Bram's brilliant book about gay American novelists, Eminent Outlaws: The Gay Writers Who Changed America, which reads like a novel. When the book came out, Bram gave a great interview to Salon about if the term of "gay novelist" was over
http://www.salon.com/2012/02/12/is_gay_literature_over/ (Bram of course is a great novelist in his own right. My favorite book by him is Surprising Myself, a really moving coming of age/coming out story set in 1980s New York.)
Michael Cunningham is famous for The Hours, but I don't think he's ever topped Home at the Top of the World (he seems to be a terrible screenwriter though--the movie version is a huge disappointment, and his screenplay for Evening is a melodramatic mess.) Flesh and Bone comes close, and seems to be one of his least read novels. However, frustratingly, my personal favorite is his first novel, Golden States. He's disowned the book and rarely talks about it--I think his reasoning being he was young and inexperienced when he wrote it, but I suspect he might also find it too personal--I found a used copy on Amazon for $20 bucks and have lent it to most of my friends who have all taken to it. It's another coming of age novel (and semi coming out) set in LA and San Fran in the 70s but I found it insanely moving.
So many other "gay novels" to list (Dancer from the Dance is one of my faves,) but one collection I recently bought and really enjoyed is Pulp Friction, which has long excerpts--and provides context--of the more significant gay pulp novels of the 40s to 70s.