The reigning monarch is Jigme Khesar Namgyel Wangchuck. The current Prime Minister of Bhutan is Tshering Tobgay, the leader of the People's Democratic Party.

The Druk Gyalpo (Dragon King) is the head of state. The political system grants universal suffrage. It consists of the National Council, an upper house with 25 elected members; and the National Assembly with 47 elected lawmakers from political parties.

Executive power is exercised by the Council of Ministers led by the prime minister. Legislative power is vested in both the government and the National Assembly. Judicial power is vested in the courts of Bhutan. The legal system originates from the semi-theocratic Tsa Yig code and has been influenced by English common law during the 20th century. The chief justice is the administrative head of the judiciary.

The first general elections for the National Assembly were held on 24 March 2008. The chief contestants were the Bhutan Peace and Prosperity Party (DPT) led by Jigme Thinley and the People's Democratic Party (PDP) led by Sangay Ngedup. The DPT won the elections by taking 45 out of 47 seats. Jigme Thinley served as Prime Minister from 2008 to 2013. The People's Democratic Party came to power in the 2013 elections. It won 32 seats with 54.88% of the vote. PDP leader Tshering Tobgay assumed the office of Prime Minister.

During the 1870s, power struggles between the rival valleys of Paro and Tongsa led to civil war in Bhutan, eventually leading to the ascendancy of Ugyen Wangchuck, the ponlop (governor) of Tongsa. From his power base in central Bhutan, Ugyen Wangchuck defeated his political enemies and united the country following several civil wars and rebellions during 1882–85.

In 1907, an epochal year for the country, Ugyen Wangchuck was unanimously chosen as the hereditary king of the country by an assembly of leading Buddhist monks, government officials, and heads of important families. John Claude White, British Political Agent in Bhutan, took photographs of the ceremony. The British government promptly recognized the new monarchy, and in 1910 Bhutan signed the Treaty of Punakha, a subsidiary alliance which gave the British control of Bhutan's foreign affairs and meant that Bhutan was treated as an Indian princely state. This had little real effect, given Bhutan's historical reticence, and also did not appear to affect Bhutan's traditional relations with Tibet. After the new Union of India gained independence from the United Kingdom on 15 August 1947, Bhutan became one of the first countries to recognize India's independence. On 8 August 1949, a treaty similar to that of 1910, in which Britain had gained power over Bhutan's foreign relations, was signed with the newly independent India.

In 1953, King Jigme Dorji Wangchuck established the country's legislature – a 130-member National Assembly – to promote a more democratic form of governance. In 1965, he set up a Royal Advisory Council, and in 1968 he formed a Cabinet. In 1971, Bhutan was admitted to the United Nations, having held observer status for three years. In July 1972, Jigme Singye Wangchuck ascended to the throne at the age of sixteen after the death of his father, Dorji Wangchuck.