Independent since 1278, for more than 7 centuries Andorra has been ruled jointly by the leader (the king, later the president) of France and by Spain's Roman Catholic bishop of the diocese of Urgel, who were acknowledged as "co-princes." Andorra's government, however, had no clear-cut division of powers into executive, legislative, and judiciary, as in most other (and virtually all democratic) states, until the late 20th century. Only in 1993 did Andorran voters approve their first written constitution, transferring all power to the parliamentary principality and proclaiming a sovereign parliamentary democracy. The constitution defined for the first time the rights and obligations of the citizens and the functions and specific terms of the separate legislative, executive, and judicial branches of the government.

The co-princes remained officially Andorra's heads of state, and they serve coequally, with limited powers and without the right to a veto over government acts. Presently, the co-princes are Jacques Chirac, the president of France, and Monseigneur Juan Marti, the bishop of Urgel. Naturally, they do not participate in person in the government's deliberations but are represented by delegates. As co-princes of Andorra, the president and the bishop maintain formally their supreme authority to approve international treaties with France and Spain, as well as all those state acts that deal with important internal security, defense, Andorran territory, diplomatic representation, and judicial or penal cooperation. Although the institution of the co-princes is viewed by many liberals as a medieval anachronism, the majority of the people of Andorra still regard them as an important symbolic element of their historical traditions and a practical way to mediate and balance the influence of both France and Spain. It is also worth mentioning that, until 1993, the principality of Andorra paid every other year, as the medieval treaties stipulated, a tribute worth US$2 to the French president and US$8 to the Spanish bishop. The bishop was additionally entitled to receive a contribution consisting of 6 hams, 6 cheeses, and a dozen live chickens.

The Andorran legislature is the General Council (founded in 1419), which has 28 members, elected to 4-year terms. There is universal suffrage in Andorra, with citizens over the age of 18 having the right to vote. At least one representative from each of the 7 parishes must be present for the General Council to meet. Historically, within the General Council, 4 deputies from each of the 7 parishes have been included in the representation. This arrangement lets the smaller parishes, who have fewer than 400 voters, be represented by the same number of delegates as the larger ones that have more than 2,500 voters. To correct this imbalance, the new constitution included a provision that introduced a modification of the process of electing the Council members; under this new arrangement, half of the delegates were to be selected by the traditional system by parishes and the other half elected from nationwide lists.

The executive power is vested in the Executive Council, headed by a president (in Catalan, the cap de govern, or head of government) who is chosen by the General Council and then formally appointed by the co-princes. The president appoints the other executive members of the council.

In the judiciary, civil cases are heard in the first instance by batlles (4-judge courts), with 2 judges each appointed by a co-prince. Appeals are heard by the one-judge Court of Appeals. The highest judicial body is the 5-member Superior Council of Justice. The Tribunal of Courts in Andorra la Vella hear all criminal cases. Andorra has no standing armed forces and only a small domestic professional police brigade. All able men possessing firearms serve without compensation in the reserve army, unique in treating all its men as officers. The army's principal responsibility is to carry the Andorran flag at official ceremonies; it has not fought a battle for more than 700 years.

Andorra's young democracy is in the process of redefining its political party system. In recent years, 3 out of the 5 parties that dominated the political scene have dissolved. The former Liberal Union (UL) is reshaping itself and changing its name to the Andorran Liberal Party (PLA), intending to offer a political umbrella to small parties and groups that have not yet consolidated. The currently ruling party is the PLA, led by the cap de govern , Marc Forne. The Social Democratic Party (PSD) attracts groups previously aligned with socialist ideals, and the third major party is the National Andorran Coalition (CAN). Given the number of parties and Andorra's size, no one party controls the General Council; therefore, legislative majorities arise through coalitions.

The fundamental impetus for the recent political transformation was a recommendation by the Council of Europe in 1990 that if Andorra wished to attain full integration in the European Union (EU), it should adopt a modern constitution which guarantees the rights of those living and working there. A Tripartite Commission made up of representatives of the co-princes, the General Council, and the Executive Council drafted the 1993 constitution. Since its adoption, the government has continued to address many other long-awaited reforms. In addition to legalizing political parties and trade unions for the first time, freedom of religion and assembly also have been guaranteed.

Since its sovereignty was established with the 1993 constitution, Andorra has become an active member of the international community. In 1993, it established its first diplomatic mission to the United Nations in New York, and in 1995, it established diplomatic relations with the United States. Andorra also has expanded relations with other nations and is a full member of many international organizations, such as the United Nations (UN), the United Nations Educational, Scientific and Cultural Organization (UNESCO), the International Telecommunications Union (ITU), and the Organization for Security and Cooperation in Europe (OSCE). Since 1991, Andorra has a trade agreement with the EU.

The Andorran government collects revenue through the sale of postage stamps and a very small number of local taxes.