After the Luxembourg Crisis, the 1867 Treaty of London required Luxembourg to dismantle the fortifications in Luxembourg City. Their demolition took sixteen years, cost 1.5m gold francs, and required the destruction of over 24 km (15 miles) of underground defences and 40,000m² (10 acres) of casemates, batteries, barracks, etc.^[4] Furthermore, the Prussian garrison was to be withdrawn.^[5]

When, in 1890, Grand Duke William III died without any male heirs, the Grand Duchy passed out of Dutch hands, and into an independent line under Grand Duke Adolphe. Thus, Luxembourg, which had hitherto been independent in theory only, became a truly independent country, and Luxembourg City regained some of the importance that it had lost in 1867 by becoming the capital of a fully independent state.

Despite Luxembourg's best efforts to remain neutral in the First World War, Luxembourg was occupied by Germany on 2 August 1914. On 30 August, Helmuth von Moltke moved his headquarters to Luxembourg City, closer to his armies in France in preparation for a swift victory. However, the victory never came, and Luxembourg would play host to the German high command for another four years. At the end of the occupation, Luxembourg City was the scene of an attempted communist revolution; on 9 November 1918, communists declared a socialist republic, but it lasted only a few hours.^[6]

In 1921, the city limits were greatly expanded. The communes of Eich, Hamm, Hollerich, and Rollingergrund were annexed into Luxembourg City, making the city the largest commune in the country.

In 1940, German occupied Luxembourg again. The Nazis were not prepared to allow Luxembourgers self-government, and gradually integrated Luxembourg into the Third Reich until it annexed the Grand Duchy, on 30 August 1942. Luxembourg City was liberated on 10 September 1944.^[7]

After the war, Luxembourg ended its neutrality, and became a founding member of several inter-governmental and supra-governmental institutions. In 1952, the city became the headquarters of the High Authority of the European Coal and Steel Community. In 1967, the High Authority was merged with the commissions of the other European institutions; although Luxembourg City would no longer be the seat of the ECSC, it would play host to some part-sessions of the European Parliament until 1981.^[8] Luxembourg remains the seat of the European Parliament's secretariat, as well as the European Court of Justice, the European Court of Auditors, and the European Investment Bank.