A princely state (also called native state or Indian state) was a nominally sovereign entity of the British Indian Empire that was not directly governed by the British, but rather by an Indian ruler under a form of indirect rule, subject to a subsidiary alliance and the suzerainty or paramountcy of the British crown.

There were officially 565 princely states when India and Pakistan became independent in 1947, but the great majority had contracted with the viceroy to provide public services and tax collection. Only 21 had actual state governments, and only four were large (Hyderabad State, Mysore State, Jammu and Kashmir State, and Baroda State). They acceded to one of the two new independent nations between 1947 and 1949. All the princes were eventually pensioned off.

At the time of the British withdrawal, 565 princely states were officially recognised in the Indian subcontinent, apart from thousands of zamindari estates and jagirs. In 1947, princely states covered 40% of the area of pre-independence India and constituted 23% of its population. The most important states had their own British political residencies: Hyderabad of the Nizams, Mysore and Travancore in the South, Jammu and Kashmir, Sikkim in the Himalayas, and Indore in Central India. The most prominent among those – roughly a quarter of the total – had the status of a salute state, one whose ruler was entitled to a set number of gun salutes on ceremonial occasions.

The princely states varied greatly in status, size, and wealth; the premier 21-gun salute states of Hyderabad and Jammu and Kashmir were each over 200,000 km² (77,000 sq mi) in size. In 1941, Hyderabad had a population of over 16 million, while Jammu and Kashmir had a population of slightly over 4 million. At the other end of the scale, the non-salute principality of Lawa covered an area of 49 km² (19 sq mi), with a population of just below 3,000. Some two hundred of the lesser states even had an area of less than 25 km² (10 sq mi).

The era of the princely states effectively ended with Indian independence in 1947; by 1950, almost all of the principalities had acceded to either India or Pakistan. In July 1946, Jawaharlal Nehru pointedly observed that no princely state could prevail militarily against the army of independent India. In January 1947, Nehru said that independent India would not accept the divine right of kings. In May 1947, he declared that any princely state which refused to join the Constituent Assembly would be treated as an enemy state.

The accession process was largely peaceful, except in the cases of Jammu and Kashmir (whose ruler decided to accede to India following an invasion by Pakistan-based forces, resulting in a long-standing dispute between the two countries), Hyderabad State (whose ruler opted for independence in 1947, followed a year later by the invasion and annexation of the state by India), Junagarh and its vassal Bantva Manavadar (whose rulers acceded to Pakistan, but were annexed by India), and Kalat (whose ruler declared independence in 1947, followed in 1948 by the state's accession to Pakistan).

As per the terms of accession, the erstwhile Indian princes received privy purses (government allowances), and initially retained their statuses, privileges, and autonomy in internal matters during a transitional period which lasted until 1956. During this time, the former princely states were merged into unions, each of which was headed by a former ruling prince with the title of Rajpramukh (ruling chief), equivalent to a state governor. In 1956, the position of Rajpramukh was abolished and the federations dissolved, the former principalities becoming part of Indian states. The states which acceded to Pakistan retained their status until the promulgation of a new constitution in 1956, when most became part of the province of West Pakistan; a few of the former states retained their autonomy until 1969 when they were fully integrated into Pakistan. The Indian government abolished the privy purses in 1971, followed by the government of Pakistan in 1972.