Nicaragua was governed by Pedrarias Davila from 1526 to 1531, but later in the century, following a period of intense rivalry and civil war among the Spanish conquerors, it was incorporated into the captaincy-general of Guatemala. Colonial Nicaragua enjoyed comparative peace and prosperity, although freebooters, notably English navigators such as Sir Francis Drake and Sir Richard Hawkins, continually raided and plundered the coastal settlements. In the 18th century the British informally allied themselves with the Miskito - a Native American people intermarried with blacks - severely challenging Spanish hegemony. For a period during and after the middle of the century the Mosquito Coast was considered a British dependency. The so-called Battle of Nicaragua at the time of the American Revolution, however, ended British attempts to win a permanent foothold in the country.

Agitation for independence began at the beginning of the 19th century, and Nicaragua declared itself independent of Spain in 1821. A year later it became part of the short-lived Mexican empire of Agustin de Iturbide, and in 1823, after Iturbide's downfall, it joined the United Provinces of Central America (with Guatemala, Honduras, El Salvador, and Costa Rica).

Factional strife between the Liberals, centered in the city of Leon, and the Conservatives, centered in Granada, became characteristic of Nicaraguan politics. The Liberals fought to establish an independent nation and in 1838 declared Nicaragua an independent republic. Civil strife continued, however, and in 1855 William Walker, an American adventurer with a small band of followers, was engaged by the Liberals to head their forces. He captured and sacked Granada in 1855 and in 1856 became president of Nicaragua. By seizing property belonging to a transport company controlled by Cornelius Vanderbilt, Walker incurred the latter's enmity. Vanderbilt backed the conservative opponents of Walker, who fled the country in 1857.

In 1893 a successful revolution brought the Liberal leader Jose Santos Zelaya to power. He remained president for the next 16 years, ruling as a dictator. Zelaya was forced out in 1909, after Adolfo Diaz was elected provisional president. Following a revolt against his government in 1912, he asked the United States for military aid to maintain order, and U.S. marines were landed. According to the Bryan-Chamorro Treaty of 1916, the U.S. paid $3 million to Nicaragua for the right to build a canal across the country from the Atlantic to the Pacific Oceans, to lease the Great and Little Corn islands, and to establish a naval base in the Gulf of Fonseca. The agreement aroused protest in several Central American countries and resulted in anti-American guerrilla warfare in Nicaragua. A force of American marines remained in Nicaragua until 1925. Rebellions began when the marines left, and the American force returned in 1926. An election was held under American supervision in 1928, and General Jose Maria Moncada, a Liberal, was chosen president. One Liberal leader, however, Augusto Cesar Sandino, engaged in a guerrilla war against U.S. forces for several years. The marines were withdrawn in 1933, leaving Anastasio Somoza commander of the National Guard. Somoza had Sandino killed and was elected president in 1937. During the next 20 years, although not always president, Somoza maintained control of Nicaragua.

Nicaragua declared war on the Axis powers on December 9, 1941. In June 1945 it became a charter member of the United Nations. Nicaragua joined the Organization of American States in 1948 and the Organization of Central American States, created to solve common Central American problems, in 1951. In 1956 Anastasio Somoza, who had resumed the presidency, was assassinated. He was succeeded by his son, Luis Somoza Debayle, who first served out his father's term and was then elected in his own right. For four years after the end of his tenure, close associates, rather than the Somozas themselves, held the presidency. Then, in 1967, Anastasio Somoza Debayle, younger son of the former dictator, was elected president. A military-minded autocrat, he repressed opposition with the aid of the National Guard.

In August 1971 the legislature abrogated the constitution and dissolved itself. In elections to a constituent assembly in February 1972, Somoza's Liberal party won decisively. In May, Somoza stepped down to the post of chief of the armed forces; political control was assumed by a triumvirate of two Liberals and one Conservative. On December 23, 1972, the city of Managua was virtually leveled by earthquake; about 6,000 were killed and 20,000 injured. Martial law was declared, and Somoza in effect became chief executive again. He was formally elected president in 1974.

In early 1978 Pedro Joaquin Chamorro, editor of the Managua newspaper La Prensa and long the most vocal of Somoza's opponents, was assassinated. Somoza was accused of complicity in the act, and the country was plunged into a period of violence that became a virtual civil war. The anti-Somoza forces were led by the Sandinista National Liberation Front, a guerrilla group formed in 1962 and named for Augusto Sandino. By April 1979 the country was in chaos. Trying to prevent another Communist regime (in addition to Cuba) in the hemisphere, the United States urged Somoza to resign in favor of a moderate coalition. He stepped down on July 17, flying to exile first in Miami, Florida, then in Paraguay, where he was assassinated in 1980.

The Sandinistas named a junta to govern the country. Facing enormous difficulties, they tried, initially with U.S. aid, to stimulate the economy, but the U.S. soon became wary of their left-wing policies and, accusing them of abetting rebels in El Salvador, cut off its aid in 1981 and began to support an anti-Sandinista guerrilla movement. In 1982, Nicaragua signed an aid pact with the USSR. In elections held in November 1984, the Sandinista presidential candidate, Daniel Ortega Saavedra, won by a large margin. In October 1985 he declared a year-long state of emergency under which civil rights were suspended. U.S. military aid to the guerrillas (known as contras) was voted down in the U.S. Congress in 1985 and was not resumed until October 1986. In November 1986, however, it was reported that the contras had benefited from funds diverted from payments made for secret arms sales to Iran by the U.S. while official military aid to the contras was suspended. In March 1988 at their first face-to-face peace talks, the contras and the Sandinistas agreed to a temporary truce.

In internationally supervised elections in February 1990, a U.S.-backed anti-Sandinista coalition, the National Opposition Union (UNO), won a majority in the National Assembly, and the UNO's Violeta Barrios de Chamorro, was elected president, succeeding Ortega. Inaugurated in April, she launched a program of reconstruction that included demobilization of the contra rebels, a gradual reduction in government troop strength, and currency reform. The high rate of inflation subsided, but economic growth remained low, and unemployment soared.

In 1991 Chamorro retained Humberto Ortega, the brother of Daniel Ortega, as chief of the army, angering contra supporters and prompting some contra forces to rearm. The crisis escalated in 1993 as contra forces took 38 hostages in an attempt to force Ortega's resignation. Sandinista supporters responded by kidnapping the country's vice president and 32 others. Although all the hostages had been released by August 1993, Chamorro's promise to remove Ortega in 1994 further reduced her support among the Sandinistas.