Earlier treaties such as the Treaty of Tordesillas and the Treaty of Zaragoza authored by both countries, and as mediated by Pope Alexander VI, stipulated that the Portuguese empire in South America could extend no farther west than 370 leagues west of Cape Verde Islands (called the Tordesillas meridian, approx. the 46th meridian). Had these treaties remained unchanged, the Spanish would have held both what is today the city of São Paulo and all land to the west and south. Thus, Brazil would be only a fraction of its present-day size.

Gold was discovered in Mato Grosso in 1695. Starting in the 17th century, Portuguese explorers, traders, and missionaries from the state of Maranhao in the north, and gold-seekers and slave-hunters, the famous bandeirantes of São Paulo, in the south, had penetrated far to the west and southwest of the old treaty-line also looking for slaves. New captaincies (administrative divisions) created by the Portuguese beyond Brazil's previously-established boundaries: Minas Gerais, Goias, Mato Grosso, Santa Catarina.

The Treaty of Madrid was an agreement concluded between Spain and Portugal on 13 January 1750. In an effort to end decades of conflict in the region of present-day Uruguay, the treaty established detailed territorial boundaries between Portuguese Brazil and the Spanish colonial territories to the south and west. Portugal also recognized Spain's claim to the Philippines while Spain acceded to the westward expansion of Brazil. Most notably, Spain and Portugal expressly abandoned the papal bull Inter caetera and the treaties of Tordesillas and Zaragoza as the legal basis for colonial division.