In Swedish history, the Age of Liberty (Swedish: frihetstiden) was a period that saw parliamentary governance, increasing civil rights, and the decline of the Swedish Empire that began with the adoption of the Instrument of Government in 1719 and ended with the Revolution of 1772, Gustav III's self-coup. This shift of power from the monarch to parliament was a direct effect of the Great Northern War.

Suffrage under the parliamentary government was not universal. Although the taxed peasantry was represented in the Parliament, its influence was disproportionately small, and commoners without taxed property had no suffrage at all.

Following the death of Charles XI of Sweden, his young son Charles XII became king, and in 1697, when he was only 15 years old, he was proclaimed to be of age and took over the rule from the provisional government. The states in which Sweden's expansion into a great power had primarily been at the expense of Denmark and Russia, formed a coalition with Saxony two years later with the aim of partitioning Sweden. After initial successes, Sweden's army was eventually reduced while the list of enemies grew. In a Swedish siege of Fredriksten Fortress in Norway in 1718, Charles XII was killed, after which most hostilities in the West ended. At the beginning of 1719, peace overtures were made to Britain, Hanover, Prussia, and Denmark.

By the Treaties of Stockholm on 20 February 1719 and 1 February 1720, Hanover obtained the Duchies of Bremen and Verden for herself and Southern Swedish Pomerania with Stettin for the confederate Brandenburg-Prussia. Northern Swedish Pomerania with Rügen, which had come under Danish rule during the war, was retained by Sweden. By the Treaty of Frederiksborg on 3 July 1720, peace was also signed between Denmark and Sweden. Denmark returned Rügen, Further Pomerania as far as the Peene, and Wismar to Sweden in exchange for an indemnity of 600,000 Riksdaler; in return, Sweden would pay the Sound tolls and give up her protectorate over Holstein-Gottorp. Peace with Russia was achieved in 1721. By the Treaty of Nystad, Sweden ceded Livonia, the Finnish province of Kexholm, and Viborg Castle to Russia, Ingria, and Estonia. Finland west of Viborg and north of Käkisalmi was restored to Sweden. Sweden also received an indemnity of two million Riksdaler and a solemn undertaking of non-interference in her domestic affairs.

Early in 1720, Charles XII's sister, Ulrika Eleonora, who had been elected queen of Sweden immediately after his death, was permitted to abdicate in favor of her husband Frederick, the prince of Hesse, who was elected king 1720 under the title of Frederick I of Sweden. Under the new constitutional settlement, Sweden became the most liberal power on the European continent, second only to Great Britain in the assertion of Parliamentary sovereignty. All power was vested in the people as represented by the Riksdag, consisting, as before, of four distinct estates: nobles, priests, burgesses, and peasants. The conflicting interests of these four independent assemblies, who sat and deliberated apart and with their mutual jealousies, made the work of legislation exceptionally difficult. No measure could now become law until it had obtained the assent of at least three of the four estates.

Each estate was ruled by its talman, or speaker, who was now elected at the beginning of each Diet, but the Archbishop of Uppsala was, ex officio, the talman of the clergy. The lantmarskalk, or speaker of the House of Nobles, presided when the estates met in congress and also, by virtue of his office, in the secret committee. This famous body, which consisted of 50 nobles, 25 priests, 25 burgesses, and, very exceptionally, 25 peasants, possessed during the session of the Riksdag not only the supreme executive but also the supreme judicial and legislative functions. It prepared all bills for the Riksdag, created and deposed all ministries, controlled the foreign policy of the nation, and claimed and often exercised the right of superseding the ordinary courts of justice. During the parliamentary recess, however, the executive remained in the hands of the Privy Council, which was responsible to the Riksdag alone.

The policy of the Hats party was a return to the traditional alliance between France and Sweden. Chancery President, and member of the rival Caps party, Count Arvid Horn acted with the recognition of Sweden's unequal status in this alliance. The Hats, however, aimed to restore Sweden to its former position as a great power. France supported the efforts of their ally to become a stronger military power and thus provided financial support to the Hats.

The Hats initiated war with Russia. The unstable European political situation due to the almost simultaneous deaths of Charles VI, Holy Roman Emperor and Empress Anne of Russia seemed to favor the Hats' schemes. Despite the protests of the Caps, a project for the invasion of Russian Finland was rushed through the premature Riksdag of 1740. On 20 July 1741, war was formally declared against Russia; a month later, the Diet was dissolved, and the lantmarskalk set off to Finland to take command of the army. The first major battle occurred six months after the declaration of war when the Russians routed the Swedes in Finland at Lappeenranta and captured the fortress. Neither side had major offensive achievements in the following six months, during which time the Swedish generals made a "tacit truce" with the Russians through the mediation of the French ambassador at Saint Petersburg. By the time that the "tacit truce" had come to an end the Swedish forces were so demoralized that the mere rumor of a hostile attack prompted a retreat to Helsinki. By the end of the year, the majority of Finland was held by Russia. The Swedish fleet was struck by an epidemic, and thus contributed little to the war.