The inhabitants are predominantly of Malay, Polynesian, and Papuan descent; there is a Chinese minority. The vast majority of the people are Roman Catholic, and there are small numbers of Muslims and Protestants. Portuguese and Tetum, the main local language, are official languages. Although Portuguese is no longer widely spoken, since independence it has been reintroduced into the government, courts, and schools. English and Bahasa Indonesia are working languages, and there are about 16 indigenous languages.

Although East Timor, whose economy is largely agricultural, was one of the world's poorest nations at independence, it has offshore oil and gas fields in the Timor Gap off East Timor's southern coast that are under development and have begun to produce revenue. Nonetheless, unemployment, estimated at 50%, remains a significant problem. Coffee (the main export), rice, corn, cassava, sweet potatoes, soybeans, cabbage, mangoes, bananas, and vanilla orchids are grown, and stretches of grassland support cattle. Industry is limited to printing, light manufacturing, and the production of handicrafts and woven cloth. Coffee, sandalwood, and marble are among East Timor's exports, and food, gasoline, kerosene, and machinery are imported. Most trade is with Indonesia, although natural gas is piped to Australia.

East Timor is governed under the constitution of 2002. The president, who is head of state, is popularly elected and may serve two five-year terms. The government is headed by the prime minister, who is appointed by the president. Members of the unicameral National Parliament are elected by popular vote for five-year terms. The number of seats can vary from 52 to 65. Administratively, the country is divided into 13 districts.

The Portuguese visited Timor in the early 16th cent. and were the first Europeans to establish themselves in Timor, at Lifau in what is now Ambeno in 1556. Their claim to the island was disputed by the Dutch, who arrived in 1613. By a treaty of 1859, modified in 1893 and finally made effective in 1914, the border between the Dutch and Portuguese territories was settled. The colonial powers exploited the island's sandalwood, which was largely exhausted by the early 1900s. In World War II, Timor was occupied (early 1942) by the Japanese. In 1950, Dutch Timor and the rest of the surrounding Dutch East Indies became the Republic of Indonesia.

In 1975, when Portugal's former colonies were being granted independence, fighting broke out between rival independence parties in Portuguese Timor. The leftist Revolutionary Front for an Independent East Timor (FRETILIN) triumphed, and on November 28th FRETILIN established the Democratic Republic of East Timor, with Francisco Xavier do Amaral as its president. Nine days later, Indonesia invaded and claimed sovereignty, administering the area as Timor Timur province, but the annexation was not accepted internationally. The population was decimated by food shortages, disease, and military violence, with perhaps as many as 120,000 people dying by 1979. Sporadic warfare with FRETILIN guerrillas continued, and in Aug., 1998, Indonesia and Portugal reached an agreement that would give East Timor the right to local self-government. Indonesia was reluctant to withdraw its forces, however, and talks broke down.

In Mar., 1999, Portugal and Indonesia agreed to let the East Timorese choose between autonomy within Indonesia or independence. Indonesia expected to win ratification of its rule, but in August, in a UN-supervised referendum, voters chose independence. The territory descended into chaos as pro-Indonesian militias and the army engaged in a campaign of terror and brutality, killing supporters of independence, looting and burning buildings, and causing thousands to flee their homes. In September, after intense international pressure, Indonesia asked the United Nations to send a peacekeeping force to East Timor. In October, the United Nations agreed to assume the administration and defense of East Timor, which became a non-self-governing territory. Although Indonesia tried some officials and security personnel in connection with the violence, all ultimately were acquitted or had their convictions overturned.

A constituent assembly, charged with writing a constitution for East Timor, was elected in Sept., 2001. In Apr., 2002, José Alexandre Xanana Gusmão (later known as Kay Rala Xanana Gusmão), a former guerrilla leader, defeated Xavier do Amaral for the presidency, and the following month East Timor became an independent nation. FRETILIN won a majority of seats in the parliament, and Mari Alkatiri became prime minister. An agreement resolving most border issues was signed with Indonesia in 2005; peacekeeping forces were withdrawn the same year.

Oil and gas fields in the waters between East Timor and Australia made the settlement of their ocean boundary contentious, but in an agreement signed in 2006 East Timor postponed settlement of the issue for 50 years in exchange for an increased percentage of oil and gas revenues. A report by an independent truth and reconciliation commission concerning the effects of Indonesia's occupation of East Timor, including an estimate of up to 183,000 deaths as a result of Indonesia's policies, was submitted to the United Nations in Jan., 2006, drawing protests from Indonesia and chilling relations with Jakarta.

In Feb., 2006, soldiers from W East Timor struck in protest over pay and perceived bias against them as westerners (generally regarded as more pro-Indonesian); in March some 600 soldiers were dismissed as a result. Protests by the former soldiers spiraled into rioting in April and gang violence in May, as former soldiers fought supporters of Prime Minister Alkatiri, whose resignation the soldiers demanded. Foreign peacekeepers returned to East Timor in late May, but stability was slow to be restored to the country, and some 150,000 were displaced as a result of the violence. In late June, Alkatiri, under pressure, finally agreed to resign, but the situation remained somewhat unsettled, and there was concern over possible long-term tensions between W and E Timorese.

José Ramos-Horta, the former foreign minister and co-winner of the 1996 Nobel Peace Prize, was appointed prime minister in July. In 2007 presidential election, Ramos-Horta defeated Francisco Guterres, the FRETILIN candidate, after a runoff in May. June legislative elections left no party in control; In August, Gusmão became prime minister of a coalition government, and FRETILIN, which had won the largest number of votes, went into opposition. Unrest in FRETILIN-dominated areas followed the government's establishment.

In Feb., 2008, in either a botched double assassination or kidnapping attempt, rebels seriously wounded the president; the prime minister escaped unharmed. The rebel leader surrendered to government forces in April. In July, 2008, a joint Indonesian–East Timorese truth commission blamed Indonesian forces and, to a minor degree, East Timorese independence forces for the violence in 1999.