In 1949, the western half of the Soviet zone became the "Deutsche Demokratische Republik" – "DDR", under control of the Socialist Unity Party. Neither country had a significant army until the 1950s, but East Germany built the Stasi into a powerful secret police that infiltrated every aspect of its society.

East Germany was an Eastern bloc state under political and military control of the Soviet Union through her occupation forces and the Warsaw Treaty. Political power was solely executed by leading members (Politburo) of the communist-controlled Socialist Unity Party (SED). A Soviet-style command economy was set up; later the GDR became the most advanced Comecon state. While East German propaganda was based on the benefits of the GDR's social programs and the alleged constant threat of a West German invasion, many of her citizens looked to the West for political freedoms and economic prosperity.

The economy was centrally planned and state-owned. Prices of housing, basic goods and services were heavily subsidized and set by central government planners rather than rising and falling through supply and demand. Although the GDR had to pay substantial war reparations to the Soviets, it became the most successful economy in the Eastern Bloc. Emigration to the West was a significant problem as many of the emigrants were well-educated young people; such emigration weakened the state economically. In response, the government fortified its inner German border and built the Berlin Wall in 1961. Many people attempting to flee were killed by border guards or booby traps such as landmines. Those captured spent long periods of time imprisoned for attempting to escape.

Walter Ulbricht (1893–1973) was the party boss from 1950 to 1971. In 1933, Ulbricht had fled to Moscow, where he served as a Comintern agent loyal to Stalin. As World War II was ending, Stalin assigned him the job of designing the postwar German system that would centralize all power in the Communist Party. Ulbricht became deputy prime minister in 1949 and secretary (chief executive) of the Socialist Unity (Communist) party in 1950. Ulbricht lost power in 1971, but was kept on as a nominal head of state. He was replaced because he failed to solve growing national crises, such as the worsening economy in 1969–70, the fear of another popular uprising as had occurred in 1953, and the disgruntlement between Moscow and Berlin caused by Ulbricht's détente policies toward the West.

The transition to Erich Honecker (General Secretary from 1971 to 1989) led to a change in the direction of national policy and efforts by the Politburo to pay closer attention to the grievances of the proletariat. Honecker's plans were not successful, however, with the dissent growing among East Germany's population.

In 1989, the socialist regime collapsed after 40 years, despite its omnipresent secret police, the Stasi. The main reasons for its collapse included severe economic problems and growing emigration towards the West.