Uruguay was discovered by Spanish Adelantados in the late 16th century, and was part of the United Provinces of the River Plate until 1811. (Although plata literally means "silver" in Spanish, "plate" is the traditional and correct translation as it was used as a synonym for precious metals up until the 19th century.) Originally, Uruguay was simply known as the Banda Oriental, or Eastern Band, of colonies along the eastern edge of the Uruguay and Plate Rivers.
When Buenos Aires expelled the last Viceroy, Baltasar Cisneros, the capital moved to Montevideo. The rebel navy sailed from Buenos Aires in an attempt to overcome the Spanish troops in that city, aided by the local rebel troops.
When Montevideo was finally freed from Spain, Uruguay intended to secede from Buenos Aires, only to be invaded by the Brazilian Empire, which started the Argentine-Brazilian war in 1813. After a variety of confusing twists, the war ultimately ended in a stalemate. With the assistance of mediation by the British government, both warring countries agreed to end their territorial claims on the Banda Oriental in 1828, thus giving birth to the new Eastern Republic of Uruguay. A constitution was subsequently drafted and adopted in 1830. British assistance in the creation of Uruguay led to a long history of British influence (including the habit of driving on the left), which ended only with World War II.
The Argentinian Civil War which ravaged that country during the 19th century was not a stranger to Uruguay, which soon gave birth to two opposing parties, the Whites (liberals) and the Reds (traditionalists) that eventually also led to a Uruguayan Civil War that went on in various hot and cold phases until the beginnings of the twentieth century. The story goes that the parties' colors originally came from armbands allegedly torn from the Uruguayan flag, but the conservatives switched to red armbands when they realized that red faded less quickly in the sun than blue.
However, the simmering tension between the left and right wings of Uruguayan politics persisted. From 1954 to 1967, Uruguay tried an unusual solution borrowed from Switzerland: a collegiate Executive Office in which a different member was designated President every year. In this way, Uruguay became the "Latin American Switzerland" for a while, acting as model of democracy and banking liberties until a military coup ended all this.
A Marxist urban guerrilla movement, the Tupamaros, launched in the late 1960s, led Uruguay's president Juan María Bordaberry to "agree" to military control of his administration in 1973. (They returned the favor by firing him from his job in 1976 and appointing the first of several puppet presidents.) By the end of 1974 the rebels had been brutally crushed (and Tupamaro leader and future president Jose Mujica was imprisoned at the bottom of a well), but the military continued to expand its hold over the government, by engaging in widespread torture and disappearances of alleged insurgents and anyone unfortunate enough to be perceived as opponents of the regime. Civilian and democratic rule was not restored until 1985.
Today, Uruguay's political and labor conditions are among the most free on the continent. In 2004, a leftist coalition (the Frente Amplio or Broad Front) which included the Tupamaros won elections which left them in control of both houses of congress, the presidency, and most city and regional governments. In 2009, former guerrilla leader Mujica was elected president.