The Charrúa, a warlike and seminomadic indigenous people, originally occupied the land on the eastern side of the Uruguay and La Plata rivers. Spanish explorer Juan Díaz de Solís was the first European to arrive in the territory now included in Uruguay. In 1516 his landing party sailed into Río de la Plata. That same year, the Charrúa killed Solis’s party on the riverbanks. Subsequent attempts to colonize the territory during the 16th century were discouraged by the Charrúa. The first permanent settlement was made in 1624 by the Spanish on the Río Negro at Soriano.

Before the arrival of Europeans, the territory which is now Uruguay supported a small population estimated at no more than 5,000 to 10,000. The principal groups were the Charrúa and Chaná Indians. These seminomadic tribes did not develop the tools necessary to farm Uruguay's grasslands. They moved to the shore in summer to fish and gather clams, fruits, and roots, and inland in the winter to hunt deer, rheas, and smaller game with bolas and bows and arrows. Bands of eight to 12 families under a chief lived in villages of five to six houses made of matted windscreens. The fierce Charrúa attacked enemies to expand hunting grounds and capture women and children.

Between 1680 and 1683, contesting Spanish ownership of the region, Portuguese colonists in Brazil established several settlements, such as the Novo Colonia del Sacramento, along the Río de la Plata opposite Buenos Aires. However, the Spanish made no attempt to dislodge the Portuguese until 1723, when the latter began fortifying the heights around the Bay of Montevideo. A Spanish expedition from Buenos Aires forced the Portuguese to abandon the site, and there the Spanish founded the city of Montevideo in 1726. Spanish-Portuguese rivalry continued in the 18th century, ending in 1777 with the establishment of Spanish rule in the territory under the jurisdiction of the viceroyalty of La Plata.