Founded as a port city by the Spanish in 1724, the natural port formed by Montevideo's bay retains its original calling as a merchant marina to this day.  Montevideo became the capital of an independent country in 1828 as part of a treaty proposed by the British. The Treaty of Montevideo ended  the 500 years ' war  between Argentina and Brazil; Uruguay became a buffer state wedged between two giants, though it had fought on the side of Argentina during the war. Up until then, Montevideo remained under Spanish Colonial rule, though the city was occupied by British forces for eight months in 1807.

The origins of the city's name remains highly debated--the most common account claims that Montevideo derives from a Portugeuse sailor's comment, "I see a hill," or, “Monte vide eu,” made upon spotting the Cerro de Montevideo. Academic accounts point towards several descriptions made of the city by members of Ferdinand Magellan's circumnavigation crew.

During both World War I and the Spanish Civil War, swarms of Italians and Spaniards crossed the Atlantic to resettle on the shores of Río de la Plata. Uruguay also has a small minority of African descendants as well a significant Jewish population. As a result of this history, Montevideo’ s ethnic make-up is very similar to Buenos Aires.

Of the whole country, Montevideo suffered the most under the 1973-1985 military dictatorship. Montevideo has its own Madres de la Plaza de Mayo protest groups, which frequently blanket the city's plazas with photos of "the disappeared."  As a result of the Nunca Más dossier—an inquiry into human rights violations committed by the Military Junta during the “Dirty War”—Argentina’s Supreme Court recently ruled to bring those implicated in the murders of leftists to justice. However, in Uruguay the electorate is still struggling to repeal an amnesty law, “The Expiration Law,” which gives the armed forces immunity from being tried for crimes committed during the dictatorship. A major step was taken in October 2006 with the arrest of Ex-President and Military Dicatator Juan Maria Bordaberry.

Uruguay is essentially a city-state. The population of its capital city makes up for more than half of the country’s entire population. Almost all of the nation’s universities are located in Montevideo, lending to a continuing trend of urban migration. In 2006, however, the state launched an initiative to expand the public university in Maldonado, hoping to increase regional development and expand public access to higher education.

On account of this, however, Montevideo is an extremely literate city. (Uruguay as a whole maintains a literacy rate of 93%.) A high number of Montevideanos are university-educated. Many have taken advantage of state-funded education and received not just one, but two bachelors degrees. Ironically, Uruguay actually suffers from a brain-drain. Many citizens, upon receiving their university degree, seek residence and employment abroad—generally either in Argentina, the US, or Spain. The 2001 peso crash in Argentina had drastic effects on the Uruguayan economy and sent many people packing off to distant cities.

While not as cosmopolitan as Buenos Aires, Montevideo does have a wealth of culture and history to offer to the visitor. Governed by an oncologist, President Tabaré Vazquez, Uruguay is also the first Latin American country to ban smoking in public buildings, bars and restaurants, even though at least 30% of the population smokes.

The city, in addition to Punta del Este and Colonia, also serves as an important financial center. 18 de Julio is filled with banks and money exchange houses. As Uruguay’s laws governing finance are much laxer, many well-to-do and nervous Argentines store their money in Uruguayans banks, foreseeing the inevitability of another peso crash. Uruguay isn’t nicknamed the Switzerland of South America for nothing, a title which does more than just refer to the tranquility of Uruguayans.