Landlocked in central South America, the Paraguay River divides the country into a hilly, forested east and a flat plain (known as the Chaco) in the west. The Chaco, marshy near the river and turning semidesert farther west, takes up 60 percent of the country but contains only 2 percent of the people. Paraguayans, mostly a mixture of Spanish and Guaraní Indian, are the most racially homogeneous in South America. Most understand Spanish but prefer to speak Guaraní.

The War of the Triple Alliance, 1865 to 1870, looms large in the minds of Paraguayans. The war claimed the lives of nine-tenths of Paraguay's adult male population as it battled Argentina, Brazil, and Uruguay over access to the sea. Paraguay won the Chaco from Bolivia during a war in the 1930s that claimed 36,000 Paraguayan soldiers. This history helps explain the country's low population density. However, in recent decades high population growth has led to a dramatic increase in landless Paraguayan families. The situation is aggravated by the influx of an estimated 400,000 Brazilians, who have crossed into Paraguay to flee high land prices in their own country.

Paraguay possesses plenty of electric power thanks to hydroelectric dams such as Itaipú, the world's largest, built and operated jointly with Brazil. Democracy replaced dictatorship by 1993, but the government faces problems with a poor agricultural population and rapid deforestation. The government works with the U.S. to reduce illegal weapons and terrorism-financing activity in Ciudad del Este—a city on the border with Argentina and Brazil.