From the beginning, the state's economic life was dominated by agriculture, as Nebraska farmland was well suited to raising wheat and corn. The farmers, however, often found themselves beset by high costs (particularly freight and grain-elevator rates), low prices for their commodities, and drought. Seeking to strengthen themselves economically, they formed local farmers' cooperatives and joined the Grange.

Despite difficulties, Nebraska generally prospered during the first two decades of statehood. The railroads brought a steady stream of immigrants to the state (mainly from the British Isles and northern and eastern Europe). Cattle ranching began in the western region, and industrial development, paced by the meat-packing industry, started.

Around 1890 a period of drought began. This, combined with low agricultural prices, brought hard times to Nebraska farmers. Many left the state. Others voiced their discontent by joining the Farmers' Alliance and supporting formation of the People's party. It was during this period of ferment that William Jennings Bryan, later a three- time nominee for President, began his political career in Lincoln.

In 1904, to aid Nebraska's troubled farm economy, the U.S. Congress passed the Kinkaid Act. This law enlarged the size of homestead units offered in sparsely populated western Nebraska. Although lack of water was still a problem, a large number of homesteaders were attracted to the state.

Prosperity returned during World War I with the demand for food for the armed forces and the Allies. After the war's end, however, the farm economy again declined sharply. The financial stress of the Great Depression of the 1930's was intensified by drought. The mortgages on many farms were foreclosed during this period. Agriculture recovered with improved weather, construction of dams to aid irrigation (proposed by Nebraska's U.S. Senator George W. Norris), and the heavy food demands of World War II. In the 1950's, lack of rain again proved to be a problem. An extensive water- and soil-conservation program was then begun.

In the late 1960's, there was serious rioting in the black ghettos of the state's largest city, Omaha. In the early 1970's, the people of the panhandle (the ranchlands of the northwest corner of Nebraska), feeling ignored by the state government, voiced discontent. (Several times since statehood, panhandle residents have called for secession.) The worst natural disaster in Nebraska history occurred in 1975 when devastating tornadoes struck the eastern part of the state.

During much of the 1980's, crop yields were reduced by prolonged drought and heat, seriously affecting the economy. In 1986 Kay Orr, a Republican, became the first woman to be elected governor of Nebraska; she held office until 1991. In the early 2000's, severe drought again affected the state.

Public education financing was improved by a tax increase in the early 1990's, but by 1996 those property tax increases were restricted. This was balanced the following year by greater state aid to the public education system, but the distribution was uneven throughout the state.

In 2005, Nebraska's governor Mike Johanns resigned after six years in office to become the U.S. Secretary of Agriculture under President George W. Bush.