Official diplomatic relations between the Republic of Azerbaijan and the Islamic Republic of Iran were established following the dissolution of the Soviet Union (1991). Iran and Azerbaijan share, to a large extent, the same history, religion, and culture. The territory of what is now called the Republic of Azerbaijan was only separated from Iran in the first half of the 19th century, through the Russo-Persian Wars. In the area to the North of the river Aras, the territory of the contemporary Republic of Azerbaijan was Iranian territory until it was occupied by Russia. Iran and Azerbaijan are furthermore the only majority Shia Muslim nations in the world. They have respectively the highest and second highest Shia population percentage in the world, as well as the history of Shi'ism which is rooted in both nations from exactly the same moment in history, whereas the majority of the population of both their neighboring nations are either predominantly Christians or Sunni Muslims. However, there are some tensions between the two countries as its political alignment may vary by degree. The Republic of Azerbaijan has become increasingly pro-Western aligned, and is an ally of Israel, Turkey and the United States (the latter two being NATO members) while the Islamic Republic of Iran is largely pro-Russian and pro-Chinese aligned due to its hostility with the U.S. and has been targeted with sanctions. Iranian politicians, like Mohammad Hosseini, have called Azerbaijan an Israeli proxy.

In May 1918, the Musavat government adopted the name "Azerbaijan" for the newly established Azerbaijan Democratic Republic, for political reasons, even though the name of "Azerbaijan" had always been used to refer to the adjacent region of contemporary northwest Iran. As the Soviet Union dissolved in 1991, a relatively downwards spiral started in the modern relations between Iran and Azerbaijan. In May 2015, the Ambassador of Iran to Azerbaijan announced that it didn't recognize the Nagorno-Karabakh Republic.

Iran recognized Azerbaijan's independence in 1991, and diplomatic relations between the two countries were established in 1992. Iran has an embassy in Baku and a consulate-general in Nakhchivan City. Azerbaijan has an embassy in Tehran and a consulate-general in Tabriz. Both countries are full members of the Economic Cooperation Organization (ECO) and the Organisation of Islamic Cooperation (OIC).