The son of Knud Lavard, duke of South Jutland, and a great-grandson of the Danish king Sweyn II, Valdemar gained sole possession of the monarchy, concluding more than 25 years of civil wars waged by competing contenders for the throne. He soon began a series of expeditions against the Wends, aided by his foster brother Absalon, whom he made bishop of Roskilde. By 1169 his forces had captured the Wendish stronghold of Rügen (now in Germany), which was incorporated into the diocese of Roskilde, and had stormed the Wend sanctuary at Arcona. A year later, however, he was forced to divide his gains with his ally Henry the Lion, duke of Saxony.

Valdemar acknowledged the overlordship of the Holy Roman emperor Frederick I Barbarossa and accepted his antipope Victor IV (or V), leading Denmark's chief prelate Eskil, archbishop of Lund, to choose exile rather than oppose Pope Alexander III. After Valdemar and Bishop Absalon reneged and acknowledged Alexander in about 1165, Eskil returned to Denmark, confirmed the canonization of the king's father, and anointed his son Canute VI as joint king (1170), inaugurating the hereditary rule of the Valdemars and vitiating the overlordship of Frederick I.

After sponsoring improvements in Danish fortifications and armed forces to defend against a possible German attack, Valdemar was able to ally with Frederick I in 1181 on virtually an equal footing. The alliance was strengthened by the marriage of Valdemar's daughter to a son of Frederick. Valdemar's strong rule provoked several rebellions that proved unsuccessful; the most serious (1180) was caused by the policies of Absalon, archbishop of Lund after 1177. The uprising was repressed by Valdemar in 1181.