Amsterdam is neither the seat of government nor the residence of the queen, but it is nevertheless the capital and cultural center of the Netherlands. The city began in about 1270 when the few inhabitants along the river Mostly built a dam that gave the town its name. With the building of the harbor at Damrak, and the formation of the inner harbor, the Rokin, the first trade activities developed.

In 1287, a storm breached the sand dunes to the northwest, creating the Zuiderzee (South Sea) and giving Amsterdam easy access to the open sea. A finger of land opposite the mouth of the Amstel protected the port against the westerly winds from the North Sea, and the tidal flow of the Zuiderzee prevented the port from silting up.

As early as 1275, Amsterdam was granted exemption from paying tolls on Dutch waterways, and was thus able to focus on trade as well as fishing. In the 14th and 15th centuries, Amsterdam was the most important port in the German Hanseatic League towns, which it joined in 1368. The city's favorable situation led to an increase in trade with the Baltic, and it became an important stockpiler of grain and other commodities. The cargo trade and fishing also stimulated industry and attracted many laborers from the countryside.

Amsterdam's buildings, built on a thick, marshy layer of peat, at first had foundations of light timber rafts that could support a single-story wooden frame dwelling. Because the city was surrounded by water, however, land near the center of Amsterdam was—as it remains today—at a premium, and this led to the design of narrow, deep, and increasingly tall houses.

When Antwerp fell to the Spanish in 1585 during the Eighty Years' War, prosperity positively exploded in Amsterdam. Within a short period, the city overtook Antwerp as the preeminent trading city. Experienced Antwerp merchants and crafts people, as well as poor Protestants and rich Portuguese Jews, sought refuge and work in Amsterdam, which gave increased impetus to trade. Amsterdam acquired a larger merchant fleet and expanded its cargo trade, and the Dutch became the "carriers" of Europe, with a fleet that was larger than those of England, Scotland, and France combined.

With Amsterdam the busiest trading town of the 17th century, recruiting inexpensive labor became ever more important to Dutch merchants. Between 1570 and 1640, Amsterdam's population increased from 30,000 to 139,000. In 1609, it was decided to undertake a considerable expansion of the city, which included the construction of the concentric pattern of canals (Herengracht, Keizersgracht, and Prinsengracht) that gives the center city its distinctive shape.

From 1795 through 1813, however, Holland was occupied by Napoleon Bonaparte's army. When the French troops evacuated, the country was left in a state of collapse, with Amsterdam's maritime glory all but gone. By 1876, Amsterdam had regained some of her former power.

World War II hit Amsterdam hard. Of the city's 86,000 Jewish residents (out of 140,000 countrywide) at the beginning of the Nazi occupation, almost all were transported outside the country to camps; fewer than 10,000 returned. The years following the war were spent in a long process of recovery and rebuilding.