Luxembourg is a parliamentary representative democracy with a constitutional monarchy, ruled by a Grand Duke. It is the world's only sovereign Grand Duchy. The country has a highly developed economy, with the highest Gross Domestic Product per capita in the world. Luxembourg is a founding member of the European Union, NATO, the United Nations, Benelux, and the Western European Union, reflecting the political consensus in favour of economic, political, and military integration. The city of Luxembourg, the capital and largest city, is the seat of several institutions and agencies of the European Union.

Luxembourg lies on the cultural divide between Romance Europe and Germanic Europe, borrowing customs from each of the distinct traditions. Luxembourg is a trilingual country; French, German, and Luxembourgish are official languages. Although a secular state, Luxembourg is predominantly Roman Catholic.

Luxembourg's stable, high-income economy features moderate growth, low inflation, and low unemployment. The industrial sector, which was dominated until the 1960s by steel, has become increasingly more diversified to include chemicals, rubber, and other products. During the past decades, growth in the financial sector has more than compensated for the decline in steel. Services, especially banking and other financial exports, account for the majority of economic output. Agriculture is based on small, family-owned farms. Luxembourg has especially close trade and financial ties to Belgium and the Netherlands (see Benelux), and as a member of the EU it enjoys the advantages of the open European market. Luxembourg possesses the highest GDP per capita in the world (US$68,800 as of 2006), the twelfth highest Human Development Index, and the fourth highest quality of life. As of March 2006, unemployment is 4.8% of the labour force. For the fiscal year of 2005 and 2006, Luxembourg has run a budget deficit for the first time in many years, mostly because of slower international economic growth.