Nevada is the only U.S. state where prostitution is legally permitted in some form. Prostitution is legal in 10 of Nevada's 17 counties, although only six allow it in every municipality. Six counties have at least one active brothel, which mainly operate in isolated, rural areas. The state's most populated counties, Clark (which contains Las Vegas) and Washoe (which contains Reno), are among those that do not permit prostitution. It is also illegal in Nevada's capital, Carson City, an independent city.

The vast majority of prostitution in Nevada takes place illegally in the metropolitan areas of Las Vegas and Reno. About 66 times more money is spent by customers on illegal prostitution in Nevada than in the regulated brothels.

Prostitution has been present in Nevada since the early days of statehood. Nevada joined the Union in 1864, and although its population grew from 6,857 people in pre-statehood 1860 to over 40,000 in 1870, and the number of residents had fluctuated throughout the years, it was only in the mid-1930s that the population reached 100,000 people, and only in the mid-1950s that it reached 200,000 people, and Nevada's population in the early decades consisted of considerably more men that women, given the history of mining in Nevada, with three quarters of the population being male at the 1870 census. Historically, Nevada's legislature considered prostitution a local issue, leaving it up to counties and cities to regulate, with only minimal regulation at state level, namely prohibiting brothels near schools or churches. In 1937, a law was enacted to require weekly health checks of all prostitutes. In 1942, President Franklin D. Roosevelt issued an order to suppress prostitution near military bases—affecting the red-light districts of Reno and Las Vegas. When this order was lifted in 1948, Reno officials tried to shut down a brothel as a public nuisance; this action was upheld by the Nevada Supreme Court in 1949. In 1951, both Reno and Las Vegas had closed their red-light districts as public nuisances, but brothels continued to exist throughout the state.

In 1971, Joe Conforte, owner of a brothel called Mustang Ranch, near Reno, in Storey County, convinced county officials to enact an ordinance which would provide for the licensing of brothels and prostitutes, thus avoiding the threat of being closed down as a public nuisance.

Officials in Las Vegas, afraid that Conforte would use the same technique to open a brothel nearby, convinced the legislature, in 1971, to enact legislation prohibiting the legalization of prostitution in counties with a population above a certain threshold, tailored to apply only to Clark County.

In 1977, county officials in Nye County tried to shut down Walter Plankinton's Chicken Ranch as a public nuisance; brothels did not have to be licensed in that county at the time, and several others were operating. Plankinton filed suit, claiming that the 1971 state law had implicitly removed the assumption that brothels are public nuisances per se. The Nevada Supreme Court agreed with this interpretation in 1978, and so the Chicken Ranch was allowed to operate. In another case, brothel owners in Lincoln County protested when the county outlawed prostitution in 1978, having issued licenses for seven years. The Nevada Supreme Court ruled, however, that the county had the right to do so.

A state law prohibiting the advertising of brothels in counties which have outlawed prostitution was enacted in 1979. It was promptly challenged on First Amendment grounds, but in 1981, the Nevada Supreme Court declared it to be constitutional. (Princess Sea Industries, one of the parties involved in the case, was Plankinton's company that owned the Chicken Ranch.) In July 2007, the law was overturned by a U.S. District judge as "overly broad", and advertising in Las Vegas started soon after. In March 2010, the district judge's decision was reversed back by a three-judge panel of the U.S. Ninth Circuit Court of Appeals. The ACLU appealed to the full Ninth Circuit Court in March 2010. It further appealed to the Supreme Court of the United States in 2011, but the Supreme Court refused to hear the appeal. The ban on brothels advertising therefore remains in force.

While brothels and prostitutes are subject to federal income tax and also pay local fees, Nevada has no state income tax, and brothels are exempt from the state entertainment tax and do not pay any other state taxes. In 2005, brothel owners lobbied to be taxed in order to increase the legitimacy of the business, but the legislature declined. Brothels pay taxes to their respective counties. Lyon County receives approximately $400,000 to $500,000 per year from these taxes.