The term "Third World" arose during the Cold War and it was used to define countries that remained non-aligned with either NATO or the Warsaw Pact. The United States, Canada, Japan, South Korea, Western European nations and their allies represented the "First World", while the Soviet Union, China, Cuba, North Korea, Vietnam and their allies represented the "Second World". This terminology provided a way of broadly categorizing the nations of the Earth into three groups based on political divisions. Due to the complex history of evolving meanings and contexts, there is no clear or agreed-upon definition of the Third World. Strictly speaking, "Third World" was a political, rather than an economic, grouping.

Because many Third World countries were economically poor and non-industrialized, it became a stereotype to refer to developing countries as "third world countries", yet the "Third World" term is also often taken to include newly industrialized countries like Brazil, China and India now more commonly referred to as part of BRIC. Some countries in the Eastern Bloc, such as Cuba, were often regarded as "Third World". The Third World was normally seen to include many countries with colonial pasts in Africa, Latin America, Oceania, and Asia. It was also sometimes taken as synonymous with countries in the Non-Aligned Movement. In the dependency theory of thinkers like Raúl Prebisch, Walter Rodney, Theotônio dos Santos, and Andre Gunder Frank, the Third World has also been connected to the world-systemic economic division as "periphery" countries dominated by the countries comprising the economic "core".

Since the dissolution of the Soviet Union and the end of the Cold War, the term Third World has decreased in use. It is being replaced with terms such as developing countries, least developed countries or the Global South. The concept itself has become outdated as it no longer represents the current political or economic state of the world and as historically poor countries have transited different income stages. In the Cold War, some European democracies (Austria, Finland, Republic of Ireland, Sweden, and Switzerland) were neutral in the sense of not joining NATO, but were prosperous, never joined the Non-Aligned Movement, and seldom self-identified as part of the Third World.