Macau was officially founded in 1557 during the great era of Portuguese overseas exploration initiated by Prince Henry the Navigator. Macau soon became the major entrepôt between the Far East and Europe; as a result, several other colonial powers, notably the Dutch, made repeated attempts to conquer the province. During the early 17th century, when the Portuguese were fighting a protracted war of independence against the Spanish (who then ruled Portugal), the Dutch tried on no less than four occasions to gain control of Macau, but were repulsed each time. After the House of Braganza regained control of Portugal from the Spanish Habsburgs in 1640, Macau was granted the official title of Cidade do Nome de Deus, de Macau, Não há outra mais Leal (City of the Name of God, Macau, There is None More Loyal).

In 1670, Macau was confirmed as a Portuguese possession by the Chinese. Macau went into decline as a regional trading centre from the early 19th century, when the British, the most recent colonial power in the region, began to settle along the Chinese coast and, in 1841, occupied the island of Hong Kong. This deep-water port attracted larger ships, and trade began to shift to the British Crown Colony. With its trading monopoly thus broken, for a while Macau was little more than a summer residence for the traders from Canton, who found the province a salubrious and relaxing retreat from the Cantonese noise and bustle. Macau was held under firm Portuguese control until the leftist military coup in 1974 which overthrew the Caetano dictatorship.

The new Portuguese regime immediately determined that all remaining territories would undergo a rapid transition to full independence: in some cases, over as little as 12 months. Macau demanded more delicate handling because of the Chinese interest, although there was no time constraint comparable to Hong Kong's 1997 deadline. In 1976, the Lisbon government redefined Macau as a 'Special Territory' and granted it a large measure of administrative and economic independence. In 1985, following the Hong Kong example, the Portuguese announced the opening of negotiations with Beijing on the transfer of sovereignty to the People's Republic. The final settlement, which was ratified in January 1988, provided for a handover in 1999, after which Macau would, like Hong Kong, become a 'Special Administrative Region' within China.

A Preparatory Committee was established in May 1998 by Beijing to supervise the transition, which passed off on schedule and without incident. The Portuguese have enjoyed a rather easier time than the British, not least because all Macau's citizens have been offered Portuguese passports (a practicable proposition, given the population of under half a million). However, their legacy to the territory was a less creditable one: the bureaucracy, which is still dominated by ethnic Portuguese, is inflexible and corrupt. There was also a sharp increase in criminal violence associated with Chinese triad gangs and the territory's all-important gambling industry (the source of two-thirds of Government revenue). Though largely content to leave the local administration to govern the territory, Beijing is gradually replacing key figures with its own appointees. In December 1999, Edmund Ho Hau-Wah was appointed to the post of Chief Executive. An equally important figure in the territory is the tycoon Stanley Ho, whose company was the only one licensed to operate casinos and gambling parlours. In early 2002, the Government decided to break the monopoly by licensing three casino operators (the new licences have been taken up by American interests). The third elections for the Legislative Assembly were held in September 2005. Turnout was a record high with 58.4 per cent of the eligible population registering its vote. A total of 125 candidates ran for the 12 seats in the direct elections. The 10 candidates for the 10 functional constituency seats were returned unopposed.

Previously a Special Territory of Portugal, Macau became a Special Administrative Region of the Republic of China on 20 December 1999. The SAR government comprises a 10-member executive Council, headed by the chief executive, and a 27-member Legislative Council. The Legislative Council comprises 10 members who are directly elected; the remainder are indirectly elected (by a 300-strong Election Committee representing corporate and organisational interests) and/or directly appointed by the Chief Executive. The first elections for the Legislative Assembly were held in September 2001. The complexion of the new Council was much the same as its predecessor, with the exception of two candidates from the New Democratic Macau Association which polled unexpectedly well.