Luxembourg was founded in 963 by Siegfried, a German count, as a fief of the Holy Roman Empire. During the next 500 years its territory was greatly expanded. The region was seized by the House of Burgundy in 1443 and passed to the Hapsburgs in 1483. Luxembourg was part of the Spanish and Austrian Netherlands held by the Hapsburgs until ceded to France (1795) in the French Revolutionary Wars. It became a grand duchy in 1815, but in 1839 Belgium claimed, and annexed, more than half of Luxembourg's territory.

Although the duchy was declared neutral territory in 1867, it was invaded by the Germans in both World Wars. Luxembourg became a charter member of the United Nations. After World War II, Luxembourg, Belgium, and the Netherlands formed the Benelux economic union. Luxembourg joined the North Atlantic Treaty Organization in 1949 and what is now the European Union in 1958. In 1964, after a 45-year reign, Grand Duchess Charlotte abdicated in favor of her son, who became Grand Duke Jean. In 1980 Luxembourg was the site of the first session of the first directly elected European parliament.

In the late 1980's and continuing into the 1990's, Luxembourg passed a series of reforms to its banking laws. A 1993 measure allowed the government to confiscate funds from suspected narcotics trafficking; a 1997 measure allowed confiscation of funds from other illegal activities.