Waterdeep, often called the City of Splendors, lies on the southwestern edge of the North. It boasts a population of almost a million and a half, though the actual number varies seasonally. In times of busy trade, the city hosts five times this number. Almost every surface-dwelling race has representatives here, and many have taken up permanent residence. The halfling population grows annually, promising to become the largest nonhuman race in residence. To match the racial variety, most religions have shrines or temples.

Waterdeep was first used as a trading site more than two millennia ago. As recently as one thousand years ago, permanent farms had spring up in the area. The first mention of a Waterdeep (not as a city, but as a collection or warlords) occurred just 400 years ago.

The city was truly established as a going concern by 1032 DR, the year of the Ahghairon became the first Lord of Waterdeep, and the date from which Northreckoning is counted. The city grew spectacularly, such that by 1248 DR both the City of the Dead and the guilds had been developed. The guildmasters seized control soon afterwards, ushering in a period of unrest and bitter conflict known as the Guildwars. These wars were ended only when the two surviving guildmasters brought in their own period of misrule. Not until 1273 DR was the present system of government instituted, with the establishment of the Magisters and the secret Lords of Waterdeep firmly reestablished in power.

Since that time, the city has continued to grow and prosper. Members of every race come from all over the Realms to earn hard coin in the City of Splendors. Over the years these successful merchants have set up guilds and become nobility themselves. The secretive Lords of Waterdeep police the city with a light hand, exercising polite authority by means of the city guard, city watch, and over 20 black-robed magistrates. As a result, Waterdeep has grown tolerant of different races, religions, and lifestyles. This in turn has encouraged commerce, and Waterdeep today is a huge, eclectic city, one of the most vibrant and prosperous in the whole of Faerûn.