Prostitution in Hong Kong is itself legal, but organised prostitution is illegal, as there are laws against keeping a vice establishment, causing or procuring another to be a prostitute, living on the prostitution of others, or public solicitation.

The most visible public venues for sex workers in Hong Kong, especially for tourists, are massage parlours and the so-called "Japanese style night clubs". However, most of the commercial sex worker industry consists of women working in small, usually one room apartments, usually referred to as "one-woman brothels", the equivalent of the "Soho walk-up" in the United Kingdom. They advertise for clients through the Internet and local classifieds. Most popular mainstream newspapers will carry such classifieds with brothel guides as an insert within racing form guides. Yellow neon advertising boxes were used to advertise sexual services to such an extent that "yellow" (黃) became synonymous with prostitution.^{[citation needed]}

In an attempt to prevent the spread of STIs, the authorities introduced "Hong Kong Ordinance No 12" in 1857. This required all brothels to be registered and workers to undergo regular health checks. Population census in 1865 and 1866 recorded 81 and 134 "Chinese brothel keepers". The 1874 Annual Report of the Colonial Surgeon reported that there were "123 licensed Chinese brothels, containing 1,358 prostitutes". From 1879 to 1932, prostitution was legal and regulated, and prostitutes were required to register for licenses, pay tax, and have regular health examination. Prostitution boomed in the districts of Sai Ying Pun, Wan Chai, Mong Kok and Yau Ma Tei. In 1930 Hong Kong, with a population of 840,000, boasted 200 legal brothels with over 7,000 licensed prostitutes. But in 1932, the Hong Kong government issued a ban on prostitution and three years later licensed prostitution ended. From that time on, prostitution was permitted within strict limits while prohibiting a whole host of activities surrounding prostitution, such as soliciting for sex and living off "immoral earnings" (working as a pimp). It has also attracted prostitutes from other countries. Most of them have come from Southeast Asia, and even from Europe and the United States.

Although organised prostitution is illegal, the industry had always been under the influence of triads to recruit economically disadvantaged women who otherwise would never enter the profession voluntarily. Until the 1980s, most Hong Kong underground sex establishments were run by gangsters. During the 1990s, however, Hong Kong saw a massive shift in the form of prostitution. There was an influx of "northern girls" (Chinese: 北姑) from mainland China who worked as prostitutes illegally in Hong Kong on their short tourist visas; local voluntary prostitutes also increased dramatically in number. As a result, gangsters could no longer make a profit by coercion and their controlling power declined.

Lyndhurst Terrace and the surrounding area were the location of some of the earliest brothels established in Hong Kong, in the mid-19th century. The Cantonese name of the street, 擺花 (pai fa) literally means "flower arrangement", possibly because of presence of numerous stalls in the area in the mid-19th century, selling flowers to the customers of the nearby brothels. The name of Lyndhurst Terrace appears in this context in James Joyce's Finnegans Wake, published in 1939. Western prostitutes concentrated there, while Chinese brothels were located in the Tai Ping Shan area near Po Hing Fong. The Chinese writer Wang Tao wrote in 1860 that Tai Ping Shan Street was full of brothels: "gaudy houses, sporting brightly painted doors and windows with fancy curtains". The brothels gradually moved to Possession Street and relocated to Shek Tong Tsui in 1903.

From 1884 to 1887 many brothels were declared by the Government to be unlicensed and closed down. These were mainly in First, Second and Third Street, but also in Sheung Fung Lane, Ui on Lane and Centre Street.

In the early 1900s Spring Garden Lane and Sam Pan Street (三板街) in Wan Chai became a red-light district with western and Chinese prostitutes. To attract attention, brothels were displaying large street number plates, and the area became known as "Big Number Brothels".

The Tanka people, an ethnic minority in coastal South China, were a source of prostitutes for the sailors of the British Empire. The Tanka in Hong Kong were considered "outcasts" and categorised as low class.