From the ninth to the twelfth century Venice developed into a city state (an Italian thalassocracy or Repubblica Marinara, the other three being Genoa, Pisa, and Amalfi). Its strategic position at the head of the Adriatic made Venetian naval and commercial power almost invulnerable. The city became a flourishing trade center between Western Europe and the rest of the world (especially the Byzantine Empire and the Islamic world). In the 12th century the foundations of Venice's power were laid: the Venetian Arsenal was under construction in 1104; Venice wrested control of the Brenner Pass from Verona in 1178, opening a lifeline to silver from Germany; the last autocratic doge, Vitale Michiele, died in 1172. The Republic of Venice seized a number of locations on the eastern shores of the Adriatic before 1200, mostly for commercial reasons, because pirates based there were a menace to trade. The Doge already carried the titles of Duke of Dalmatia and Duke of Istria. Later mainland possessions, which extended across Lake Garda as far west as the Adda River, were known as the "Terraferma", and were acquired partly as a buffer against belligerent neighbours, partly to guarantee Alpine trade routes, and partly to ensure the supply of mainland wheat, on which the city depended. In building its maritime commercial empire, the Republic acquired control of most of the islands in the Aegean, including Cyprus and Crete, and became a major power-broker in the Near East. By the standards of the time, Venice's stewardship of its mainland territories was relatively enlightened and the citizens of such towns as Bergamo, Brescia and Verona rallied to the defence of Venetian sovereignty when it was threatened by invaders. Venice remained closely associated with Byzantium, being twice granted trading privileges in the Empire, through the co-called Golden Bulls or 'chrysobulls' in return for aiding the Eastern Empire to resist Norman and Turkish incursions. In the first Venice acknowledged its homage to the Empire but not in the second, reflecting the decline of Byzantium and the rise of Venice's power. Venice became an imperial power following the Fourth Crusade, which seized Constantinople in 1204 and established the Latin Empire; Venice itself carved out a sphere of influence known as the Duchy of the Archipelago. This seizure of Constantinople would ultimately prove as decisive a factor in ending the Byzantine Empire as the loss of the Anatolian themes after Manzikert. Though the Byzantines recovered control of the ravaged city a half century later, the Byzantine Empire was greatly weakened, and existed as a ghost of its old self, struggling on with the help, among other things, of loans from Venice (never repaid) until Sultan Mehmet The Conqueror took the city in 1453. Considerable Byzantine plunder was brought back to Venice, including the gilt bronze horses which were placed above the entrance to St Mark's cathedral. Situated on the Adriatic Sea, Venice traded with the Byzantine Empire and the Muslim world extensively. By the late thirteenth century, Venice was the most prosperous city in all of Europe. At the peak of its power and wealth, it had 36,000 sailors operating 3,300 ships, dominating Mediterranean commerce. During this time, Venice's leading families vied with each other to build the grandest palaces and support the work of the greatest and most talented artists. The city was governed by the Great Council, which was made up of members of the most influential families in Venice. The Great Council appointed all public officials and elected a Senate of 200 to 300 individuals. Since this group was too large for efficient administration, a Council of Ten (also called the Ducal Council or the Signoria), controlled much of the administration of the city. One member of the great council was elected "Doge", or duke, the ceremonial head of the city, who normally held the title until his death.

The Venetian governmental structure was similar in some ways to the republican system of ancient Rome, with an elected chief executive (the Doge), a senate-like assembly of nobles, and a mass of citizens with limited political power, who originally had the power to grant or withhold their approval of each newly elected Doge. Church and various private properties were tied to military service, though there was no knight tenure within the city itself. The Cavalieri di San Marco was the only order of chivalry ever instituted in Venice, and no citizen could accept or join a foreign order without the government's consent. Venice remained a republic throughout its independent period and politics and the military were kept completely separate, except when on occasion the Doge personally led the military. War was regarded as a continuation of commerce by other means (hence, the city's early production of large numbers of mercenaries for service elsewhere, and later its reliance on foreign mercenaries when the ruling class was preoccupied with commerce).

The chief executive was the Doge (duke), who, theoretically, held his elective office for life. In practice, a number of Doges were forced by pressure from their oligarchical peers to resign the office and retire into monastic seclusion when they were felt to have been discredited by perceived political failure.
Though the people of Venice generally remained orthodox Roman Catholics, the state of Venice was notable for its freedom from religious fanaticism and it enacted not a single execution for religious heresy during the Counter-Reformation. This apparent lack of zeal contributed to Venice's frequent conflicts with the Papacy. Venice was threatened with the interdict on a number of occasions and twice suffered its imposition. The second, most famous, occasion was on April 27, 1509, by order of Pope Julius II (see League of Cambrai).
Venetian ambassadors sent home still-extant secret reports of the politics and rumours of European courts, providing fascinating information to modern historians.