During World War II, Italy under Benito Mussolini occupied Montenegro in 1941 and annexed to the Kingdom of Italy the area of Kotor (Cattaro), where there was a small Venetian speaking population.

The puppet Kingdom of Montenegro was created under fascist control while Krsto Zrnov Popović returned from his exile in Rome in 1941 to attempt to lead the Zelenaši ("Green" party), who supported the reinstatement of the Montenegrin monarchy. This militia was called the Lovćen Brigade. Montenegro was ravaged by a terrible guerrilla war, mainly after Nazi Germany replaced the defeated Italians in September 1943.

During World War II, as was the case in many other parts of Yugoslavia, Montenegro was involved in some sort of civil war. Besides Montenegrin Greens, the two main factions were the Chetnik Yugoslav army, who swore allegiance to the government in exile and consisted mainly of Montenegrins who declared themselves as Serbs (many of its members were Montenegrin Whites) and Yugoslav Partisans, whose aim was the creation of a Socialist Yugoslavia after the war. Since both factions shared some similarities in their goals, particularly those relating to a unified Yugoslavia and anti-Axis resistance, the two sides joined hands and in 1941 started the 13th July uprising, the first organised uprising in occupied Europe. This occurred just two months after Yugoslavia capitulated, and liberated most of Montenegrin territory, but the rebels were unable to regain control of major towns and cities. After the failed attempts to liberate the towns of Pljevlja and Kolasin, the Italians, reinforced by Germans, recaptured all insurgent territory. At the leadership level, disagreements regarding state policy (Centralist monarchy vs. Federal Socialist republic) eventually led to a split between the two sides; they then became enemies from thereon. Constantly, both factions were trying to gain support among the population. However, eventually the Chetniks in Montenegro lost support among the population, as did other Chetnik factions within Yugoslavia. The de facto leader of the Chetniks in Montenegro, Pavle Djurisic, along with other prominent figures of the movement like Dusan Arsovic and Đorđe Lašić, were held responsible for massacres of Muslim population in eastern Bosnia and Sandzak during 1944. Their ideology of a homogeneous Serbia within Yugoslavia proved to be a major obstacle in recruiting liberals, minorities, and Montenegrins who regarded Montenegro as a nation with its own identity. These factors, in addition to the fact that some Chetniks were negotiating with the Axis, led to the Chetnik Yugoslav army losing support among the Allies in 1943. In the same year, Italy, who was until then in charge of the occupied zone, capitulated and was replaced by Germany, and the fighting continued.

Podgorica was liberated by the socialist Partisans on 19 December 1944, and the war of liberation had been won. Josip Broz Tito acknowledged Montenegro's massive contribution to the war against the Axis powers by establishing it as one of the six republics of Yugoslavia.