Originally a fishing and textiles town, Shanghai grew to importance in the 19th century due to its favourable port location and as one of the cities opened to foreign trade by the 1842 Treaty of Nanking. The city flourished as a center of commerce between east and west, and became a multinational hub of finance and business by the 1930s. However, Shanghai's prosperity ended after the 1949 Communist takeover and the subsequent cessation of foreign investment. Economic reforms in 1990 have resulted in intense development and financing, and in 2005 Shanghai became the world's largest cargo port.

The city is an emerging tourist destination renowned for its historical landmarks such as the Bund and Xintiandi, its modern and ever-expanding Pudong skyline including the Oriental Pearl Tower, and its new reputation as a center of culture and design. Today, Shanghai is mainland China's center for commerce and finance, and has been described as the "showpiece" of the world's fastest-growing economy.

During the Song Dynasty (AD 960–1279) Shanghai was upgraded in status from a village (cun) to a market town (zhen) in 1074, and in 1172 a second sea wall was built to stabilize the ocean coastline, supplementing an earlier dike. From the Yuan Dynasty in 1292 until Shanghai officially became a city for the first time in 1927, the area was designated merely as a county (xian) administered by the Songjiang Prefecture (Songjiang Fu).

Two important events helped promote Shanghai's development in the Ming Dynasty. A city wall was built for the first time during in 1554, in order to protect the town from raids by Japanese pirates (wako), but this wall was neither very high nor very long by comparison with those of other Chinese cities. It measured 10 meters high and 5 kilometers in circumference. During the Wanli reign (1573-1620), Shanghai received an important psychological boost from the erection of a City God Temple (Cheng Huang Miao) in 1602. This honor was usually reserved for places with the status of a city, such as a prefectural capital (fu), and was not normally given to a mere county town (zhen) like Shanghai. The honor was probably a reflection of the town's economic importance, as opposed to its low political status.

During the Qing Dynasty, Shanghai became the most important sea port in the whole Yangzi Delta region. This was a result of two important central government policy changes. First of all, Emperor Kangxi (1662-1723) in 1684 reversed the previous Ming Dynasty prohibition on ocean going vessels, a ban that had been in force since 1525. Secondly, Emperor Yongzheng in 1732 moved the customs office (hai guan) for Jiangsu province from the prefectural capital of Songjiang city to Shanghai, and gave Shanghai exclusive control over customs collections for the foreign trade of all Jiangsu province. As a result of these two critical decisions, Professor Linda Cooke Johnson has concluded that by 1735 Shanghai had become the major trade port for all of the lower Yangzi River region, despite still being at the lowest administrative level in the political hierarchy.

The importance of Shanghai grew radically in the 19th century, as the city's strategic position at the mouth of the Yangtze River made it an ideal location for trade with the West. During the First Opium War in the early 19th century, British forces temporarily held Shanghai. The war ended with the 1842 Treaty of Nanjing, which saw the treaty ports, Shanghai included, opened for international trade. The Treaty of the Bogue signed in 1843, and the Sino-American Treaty of Wangsia signed in 1844 together saw foreign nations achieve extraterritoriality on Chinese soil, the start of the foreign concessions.

Nanjing Road in the 1930s1854 saw the first meeting of the Shanghai Municipal Council, created in order to manage the foreign settlements. In 1863, the British settlement, located to the south of Suzhou creek (Huangpu district), and the American settlement, to the north of Suzhou creek (Hongkou district), joined in order to form the International Settlement. The French opted out of the Shanghai Municipal Council, and maintained its own French Concession, located to the south of the International Settlement, which still exists today as a popular attraction. Citizens of many countries and all continents came to Shanghai to live and work during the ensuing decades; those who stayed for long periods — some for generations — called themselves "Shanghailanders". In the 1920s and 1930s, almost 20,000 so-called White Russians and Russian Jews fled the newly-established Soviet Union and took up residence in Shanghai. These Shanghai Russians constituted the second-largest foreign community.