The Chaco War (Spanish: Guerra del Chaco, Guarani: Cháko Ñorairõ) was fought from 1932 to 1935. It was between Bolivia and Paraguay over control of the northern part of the Gran Chaco region (known in Spanish as the Chaco Boreal), which was thought to be rich in petroleum. The war is also referred to as La Guerra de la Sed (Spanish for "The War of Thirst"), since it was fought in the semi-arid Chaco. It was the first South America war in which modern weapons (such as machine guns, armoured fighting vehicles and airplanes) were used, and also the bloodiest South America war of the 20th century — around 2% of the Bolivian population and 3% of Paraguayans were killed during the conflict.

During the war, both landlocked countries faced difficulties moving arms and supplies through neighbouring countries. Despite its income from mining and a larger and better-equipped army, problems with international trade and poor internal communications ultimately turned the tide against Bolivia. The war concluded at the Chaco Peace Conference in Buenos Aires in July 1938, at which both countries signed a peace treaty awarding three-quarters of the Gran Chaco to Paraguay.

The origins of the war are attributed to a long-standing territorial dispute and to the discovery of oil deposits on the eastern Andes range. After losing territory to neighboring countries in the late 19th century, both Bolivia and Paraguay had become landlocked countries. The 600,000 square kilometres (230,000 square miles) Chaco was sparsely populated, but control of the Paraguay River running through it would provide access to the Atlantic Ocean. Paraguay had lost almost half of its claimed territory to Brazil and Argentina as a consequence of the War of the Triple Alliance (1864–1870), and its economic viability depended on retaining control of the Paraguay River. In 1879, Bolivia lost its Pacific coast to Chile during the War of the Pacific. The 1929 Treaty of Lima ended the hopes of the Bolivian government of recovering a land corridor to the Pacific Ocean, so Bolivia viewed access to the Atlantic Ocean via the Paraguay River as imperative to international trade and further economic development.

In international arbitration, Bolivia argued that the region had been part of the original Spanish colonial province of Moxos and Chiquitos to which Bolivia was heir. Meanwhile, Paraguay based its case on the occupation of the land. Indeed, both Paraguayan and Argentine ranchers were already breeding cattle and exploiting the quebracho forests in the area, and the small population of nomadic indigenous Guaraní-speaking people was related to Paraguay's own Guaraní heritage. As of 1919, Argentine banks owned 400,000 hectares (990,000 acres) of land in the eastern Chaco, and the Casado family, a powerful part of the Argentine oligarchy, held 141,000. The presence of Mennonite colonies in the Chaco, who settled there in the 1920s under the auspices of the Paraguayan government, was another factor in favour of Paraguay's claim.

The impetus for war was exacerbated by a conflict between oil companies jockeying for exploration and drilling rights, with Royal Dutch Shell backing Paraguay and Standard Oil Company supporting Bolivia. The discovery of oil in the Andean foothills sparked speculation that the Chaco might prove to be a rich source of petroleum. Standard Oil was already producing oil from wells in the hills of eastern Bolivia, around Villamontes. In addition to the interests of these companies, Argentina's goal of importing petroleum from the Chaco also contributed to the instigation of the war. In opposition to the "dependency theory" of the war's origins, the British historian Matthew Hughes argued against the thesis that Bolivian and Paraguayan governments were the "puppets" of Standard Oil and Royal Dutch Shell respectively by writing: "In fact, there is little hard evidence available in the company and government archives to support the theory that oil companies had anything to do with causing the war or helping one side or the other during the war". The historian Bret Gustafson, on the other hand, argues that "the blurred lines between the bank and the oil industry show that [Standard Oil] did indeed finance the Bolivian build-up, even if instigating the war was left to Bolivian generals."

The first confrontation between the two countries dates back to 1885, when Bolivian president Gregorio Pacheco founded Puerto Pacheco, a port on the Upper Paraguay River, asserting that this new settlement was well inside Bolivian territory. In 1888, the Paraguayan government sent the gunboat Pirapó, commanded by Paraguayan War veteran Domingo Antonio Ortiz, which forcibly evicted the Bolivians from the settlement. Two agreements followed, in 1894 and 1907, which neither the Bolivian nor the Paraguayan government approved. Meanwhile, in 1905, Bolivia — ignoring Paraguayan official protests — founded Ballivián and Guachalla, two new outposts along the Pilcomayo River in the Chaco.

Bolivian penetration in the region went unopposed until 1927, when the first blood was shed over the Gran Chaco. On 27 February, members of a Paraguayan Army foot patrol were taken prisoner near the Pilcomayo River and held in the Bolivian outpost of Fortín Sorpresa, where the commander of the Paraguayan detachment, Lieutenant Adolfo Rojas Silva, was shot and killed in suspicious circumstances. Fortín (Spanish for "little fort") was the name used for the small pillbox and trench-like garrisons constructed by the military forces in the Chaco. The Bolivian government formally regretted the death of Rojas Silva, but Paraguayan public opinion called it "murder". After subsequent talks in Buenos Aires failed to produce any agreement in January 1928, the dispute grew more violent. On 5 December 1928, a Paraguayan cavalry unit overran Fortín Vanguardia, an advance outpost established by the Bolivian army a few kilometres northwest of Bahía Negra. The Paraguayans captured 21 Bolivian soldiers and burned their huts to the ground.

On 14 December 1928, Bolivia retaliated by capturing Fortín Boquerón (which would later be the site of the first major battle of the campaign), killing 15 Paraguayans. The Bolivians also conducted an air strike on Bahía Negra on 15 December, which caused few casualties and little damage. A return to the status quo ante bellum was eventually agreed on 12 September 1929 in Washington, DC, under pressure from the Pan American League, but an arms race had already begun, and both countries were on a collision course. The regular border clashes might have led to war in the 1920s if either side had been capable of waging war. However, neither Paraguay nor Bolivia had an arms industry, and both countries had to import vast quantities of arms from Europe and the United States to arm themselves for the coming conflict. It was this lack of sufficient arms that delayed the outbreak of the war until 1932.