Macau Peninsula connects to Taipa by bridge, and Taipa and Coloane are linked by a causeway, which traverses the Duck Channel, a distributary of the Hsi River. Both the peninsula and the islands consist of small granite hills surrounded by limited areas of flatland, which is used for agriculture. The natural vegetation was evergreen tropical forest before the hills were stripped for firewood and construction. No part of Macau reaches any great elevation; the highest point, 571 feet (174 metres), is at Coloane Alto on Coloane. There are no permanent rivers, and water is either collected during rains or imported from the mainland.

Macau lies just within the tropics. Four-fifths of its total annual rainfall of 40–100 inches (1,020–2,540 mm) falls within the summer rainy season (April–September), when the southwest monsoon blows. Summer temperatures reach 84 °F (29 °C) and fall to 59 °F (15 °C) in winter. Besides being rainy, the summer months are also hot, humid, and unpleasant. Winters, on the other hand, can be delightful.

Nearly all of the population, of which four-fifths lives in the city of Macau, is ethnic Chinese; there is a Portuguese minority. Of the Chinese Macanese, the vast majority are Cantonese speakers, and a few speak Hakka. In 1992 Chinese (Cantonese) joined Portuguese as an official language; English is also commonly spoken. The Chinese in Macau are primarily Buddhist, while others adhere to Daoism and Confucianism; virtually the entire Portuguese population is Roman Catholic.

Unemployment in Macau is relatively low. The service sector employs about one-third of the total labour force, and there are few skilled labourers. There also are few natural resources, an exception being fish in the Pearl River estuary, which satisfy local needs. Agriculture is minimal; rice and vegetables are the main crops, and some cattle, buffalo, pigs, and poultry are raised. Macau is, however, a free port, and trade is vital. The mainland is of major importance as a supplier of food and inexpensive consumer goods. Roughly half of imports are raw materials for manufacturing purposes, and imported petroleum provides most of the power for electricity. Textiles and garments are the primary exports, but Macau also exports fireworks, toys, Chinese wines, incense sticks, camphorwood chests, artificial flowers, and electronics. Nearly half of all its goods are exported to the United States and about one-third to countries of the European Union. Macau also has long had a reputation for gold smuggling. In 1991 it became a member of the General Agreement on Trade and Tariffs, now the World Trade Organization.

In 1989 the Monetary and Foreign Exchange Authority of Macau replaced the Instituto Emissor de Macau as regulator of the currency, the Macau pataca, which is pegged to the Hong Kong dollar. Commercial and foreign banks, as well as banks of issue and a banking association, constitute Macau's banking and financial system. Since the mid-1990s the government has made efforts to diversify the economy away from its heavy reliance on tourism, by attracting foreign investors.

Tourism, which with gambling contributes more than two-fifths of Macau's gross domestic product, is an extremely important factor in the economy, and the region, in effect, serves as the playground of nearby Hong Kong. High-speed hydrofoils, as well as some traditional but slower river ferries, carry tourists from Hong Kong to Macau's numerous gambling casinos, bars, hotels, and other attractions. Internal transport is good, and there are local ferries between the peninsula and the islands. Following the December 1999 transfer of administrative status from Portugal to China, Macau still remained a free and open port. An international airport became operational in Macau in 1995.

Before it became a special administrative region of China in 1999, Macau followed the colonial constitution promulgated in 1976; it was administered by a governor, who in agreement with the Legislative Assembly was appointed by the Portuguese president. With the transfer of sovereignty over the territory to China, the Basic Law of the Macau Special Administrative Region, which outlined a policy of “one country, two systems,” went into effect. For a period of 50 years, Macau will thus retain its capitalist economy and some political autonomy, but foreign policy and defense matters will remain under Chinese administration.

According to the Basic Law, the chief executive, who serves a five-year term, holds executive authority but is under the jurisdiction of the central government in Beijing (Peking). An election committee of 300 members, who serve five-year terms, selects the chief executive. The chief executive also appoints an executive council, which consists of about a dozen members, to assist in policy making. The legislature is a single-chamber Legislative Council, headed by an elected president and vice president; the council has no more than 30 members, who after a shorter first term serve subsequent four-year terms.

Law is based on the Portuguese system. The judicial system was completely administered from Portugal until 1993, when a high court of justice was established in Macau. A new penal code was authorized in 1996 in response to a rise in crime. The Basic Law states that the judicial system remains intact with the transfer of sovereignty and that all judges are appointed by the chief executive. The highest court is the Court of Final Appeal, headed by a chief justice. There are also lower primary courts, intermediate courts, and administrative courts. Macau has a small security force, but defense is the responsibility of the central government in Beijing.

Five years of primary education are officially compulsory, and education is free for children from age 6 to 14. Most receive instruction in Chinese (Cantonese), while the remainder are taught in either English or Portuguese. The University of Macau, formerly the University of East Asia, opened in the early 1990s. About three-fifths of the population is literate.

There are medical centres and hospitals in Macau, and traditional Chinese medicine is also practiced. The elderly receive medications free of charge. The average life expectancy is about 80 years, and the birth and infant mortality rates are both low. The government has constructed low-income housing units, and the private sector has introduced social housing with controlled prices.

Chinese culture predominates, overlaid by a veneer of Portuguese architecture (notably churches and cathedrals) and customs. Chinese temples and shrines coexist with restored villas from the colonial period. Barrier Gate, which links Macau Peninsula to the mainland, is a popular spot for tourists.

Named for the Portuguese poet and writer of the epic Os Lusíadas, the Luís de Camões Museum (now part of the Macau Museum) houses Chinese pottery, paintings, and artifacts and is surrounded by fragrant gardens. As is the case in Hong Kong, Cantonese pop (“canto-pop”) is a popular form of music. Spectator sports include both dog and horse racing. The Macau Grand Prix also attracts numerous international competitors and fans of motor racing. Football (soccer), track and field, volleyball, and roller hockey are popular team and individual sports. In the 1990s Macau hosted several Roller Hockey World Championships.

Television and radio broadcasts come from Hong Kong, and local radio stations in Macau broadcast programs in Portuguese. A state-run television station broadcasts in Portuguese and English. Several Cantonese- and Portuguese-language newspapers are circulated, but a law enacted in 1990 restricts freedom of the press.

The first Portuguese ship anchored in the Pearl River estuary in 1513, and further Portuguese visits followed regularly. Trade with China commenced in 1553. Four years later Portuguese paying tribute to China settled in Macau, which became the official and principal entrepôt for international trade with China and Japan and an intermediary port for ships traveling from Lisbon to Nagasaki; China, nonetheless, still refused to recognize Portuguese sovereignty. The first governor was appointed in the 17th century, but the Portuguese remained largely under the control of the Chinese. Missionaries carried over on Portuguese ships transformed Macau into an East Asian centre of Christianity. Even though China's trade with the outside world was gradually centralized in Canton toward the end of the 18th century, merchants were allowed into Canton only during the trading season—from November to May—and the international merchant community established itself at Macau. By the mid-19th century the British colony of Hong Kong had surpassed Macau in trade, and within a few years the merchants had largely deserted the Portuguese possession, which never again was a major entrepôt.

In the 1930s and '40s Macau, declared a neutral territory during the Sino-Japanese War and World War II, became a refuge for both Chinese and Europeans. The Chinese population in the territory continued to grow when the communist government assumed power in China in 1949. In 1951 Portugal officially made Macau an overseas province. Following a military coup in Portugal in 1974, the government allotted more administrative autonomy and economic independence to the territory. The constitution promulgated in 1976 established the Legislative Assembly, which was dominated by the minority Portuguese. Until diplomatic relations were solidified between Portugal and the communist government in China in 1979, discussions on transferring Macau to Chinese control were fruitless.

In March 1984 the Portuguese governor dissolved the assembly in response to opposition within the government to extend the right to vote to the Chinese majority. A few months later new elections, which included Chinese suffrage, finally brought a significant number of Chinese deputies into the government. In April 1987 Portugal and China reached an agreement to return Macau to Chinese rule in 1999, using the Hong Kong Joint Declaration between Britain and China as a model. They agreed to provisions under the Basic Law that would ensure the autonomy of Macau for 50 years after the start of Chinese rule. These included Macau's right to elect local leaders, the right of its residents to travel freely, and the right to maintain its way of life, both economically and socially. Defense and foreign policy matters were to be administered by China, and those living in Macau without Portuguese passports would become Chinese citizens. Elections continued to turn out record numbers of voters and a Chinese majority legislature. On December 20, 1999, Macau became a special administrative region under Chinese sovereignty, as Hong Kong had in 1997.