There is evidence that Stone Age peoples lived in the area that is now Monaco; the Phoenicians, Greeks, Carthaginians, and Romans were also familiar with the area. In the year 1191, the Genoese took possession of Monaco, and the Genoan family of the Gibelins laid the first stone of the castle, which remains the Prince's Palace, in 1215.

Since 1297, however, Monaco has been under the care and protection of the Grimaldi family. The Grimaldis, one of the major families of Genoa, were prominent in Guelph (pro-papal) politics during the Middle Ages. For most of Monaco's history, the Grimaldis were allied with France, except for the period from 1524 to 1641, when they came under the protection of Spain. Monaco became a principality in 1659. Although Monaco was annexed to France during the French revolution, the Grimaldis came back into power after the fall of Napoleon. Monaco's independence, however, was not restored until the Franco-Monegasque treaty of 1861. A 1918 treaty with France contained a clause saying that if the Grimaldi dynasty should become extinct, Monaco would become an autonomous state under French protection.

Since 1819, Monaco's judicial system has been based on that of France; since 1962 the highest judicial authority in the principality has been the Supreme Tribunal. The government is run by a minister of state and three state councilors who act under the authority of the prince. According to Monegasque law, the minister of state must be a French citizen.

Prince Charles III put Monaco onto the map as a playground for the rich in 1856 when he granted a charter permitting a joint stock company to build a casino. Prince Albert I (1848–1922) was an enthusiastic oceanographer who founded the Oceanographic Museum in Monaco and the Oceanographic Institute in Paris. He also gave Monaco a constitution in 1911.

Rainier III became prince of Monaco in 1949. He skyrocketed to international fame when he married the American motion-picture actress Grace Kelly in 1956. The couple had three children, Princess Caroline, Prince Albert, and Princess Stephanie. Princess Grace died of injuries she received in an automobile accident in 1982.

Rainier celebrated his 50th anniversary as prince in 1999. He died in 2005, and has been succeeded by his son Albert.