Europeans first arrived in the area in the early 16th century and the settlement of Asunción was founded on August 15, 1537, by the Spanish explorer Juan de Salazar. The city eventually became the centre of a Spanish colonial province, as well as a primary site of the Jesuit missions and settlements in South America in the 18th century. Paraguay declared its independence by overthrowing the local Spanish authorities on May 14, 1811.

In the disastrous War of the Triple Alliance (1865–1870), Paraguay lost 140,000 square kilometres (54,000 sq mi) of territory (e.g. the Misiones region) and suffered a huge loss of its male population. Tradition holds that up to two thirds or more of the adult male population was killed, but some argue that upon analysis from historic records and census reports, this figure is greatly exaggerated. Paraguay gained a large part of its current territory at the expense of Bolivia. The war was the culmination of a long series of border disputes between the two countries, Paraguay and Bolivia. They tried to settle their claims diplomatically since the middle of the 19th century. Successive negotiations failed to produce a definitive agreement, and Paraguay established its jurisdiction by encouraging the settlement of the largely unpopulated Chaco area. By 1935, Bolivia had regrouped and was able to stop the advance of the Paraguayan army. Exhausted by a long war, and having expanded its territory considerably, Paraguay accepted the mediation of the League of Nations.