When Frederick ascended the throne as "King in Prussia" in 1740, Prussia consisted of scattered territories, including Cleves, Mark, and Ravensberg in the west of the Holy Roman Empire; Brandenburg, Hither Pomerania, and Farther Pomerania in the east of the Empire; and the former Duchy of Prussia, outside of the Empire bordering the Polish-Lithuanian Commonwealth. He was titled "King in Prussia" because this was only part of historic Prussia; he was to declare himself "King of Prussia" after acquiring most of the rest in 1772.
Frederick's goal was to modernize and unite his vulnerably disconnected lands; toward this end, he fought wars mainly against Austria, whose Habsburg dynasty reigned as Holy Roman Emperors, almost continuously from the 15th century until 1806. Frederick established Prussia as the fifth and smallest European great power by using the resources his frugal father had cultivated.
The First Silesian War (1740–1742), part of the War of the Austrian Succession (1740–1748), resulted in Frederick conquering the Polish part of Silesia. Austria attempted to recover Silesia in the Second Silesian War (1744–1745), but Frederick was victorious again and forced Austria to stick to the previous peace terms. Prussian possession of Silesia gave the kingdom control over the Oder River.
Habsburg Austria and Bourbon France, traditional enemies, allied together in the Diplomatic Revolution of 1756 following the collapse of the Anglo-Austrian Alliance. Frederick swiftly made an alliance with Great Britain at the Convention of Westminster. As neighboring countries began conspiring against him, Frederick was determined to strike first. On 29 August 1756 his well-prepared army crossed the frontier and invaded Saxony, thus beginning the Seven Years' War which lasted until 1763. He faced widespread criticism for his attack on neutral Saxony and for his forcible incorporation of the Saxon forces into the Prussian army following the Siege of Pirna in October 1756.
Facing a coalition which included Austria, France, Russia, Saxony, and Sweden, and having only Great Britain and Hanover as his allies, Frederick narrowly kept Prussia in the war despite having his territories frequently invaded.
The sudden death of Empress Elizabeth of Russia put her pro-Prussian nephew Peter III in power. This led to the collapse of the anti-Prussian coalition. Although Frederick did not gain any territory in the ensuing Treaty of Hubertusburg, he was able to keep Silesia. Prussia became popular in many German-speaking territories.
Late in his life Frederick also involved Prussia in the smaller War of the Bavarian Succession in 1778, in which he stopped Austrian attempts to exchange the Austrian Netherlands for Bavaria. When Emperor Joseph II| tried the scheme again in 1784, Frederick created the "Fürstenbund", making Germans see him as a defender of German liberties, in contrast to his earlier role of attacking the imperial Habsburgs.
Frederick frequently led his military forces personally and had six horses shot from under him during battle. Frederick is often admired as one of the greatest tactical geniuses of all time, especially for his usage of the oblique order of battle. Even more important were his operational successes, especially preventing the unification of numerically superior opposing armies and being at the right place at the right time to keep enemy armies out of Prussian core territory. In a letter to his mother Maria Theresa, the Austrian co-ruler Emperor Joseph II wrote,
Frederick transformed Prussia from a European backwater into an economically strong and politically reformed state. His conquest of Silesia, which provided Prussia's new industries with raw materials, helped boost industrial production and development, and he protected these industries with high tariffs and a minimum of restrictions on internal domestic trade. The modernizing mechanisms and technology of the state also enabled Frederick, in 1747, to undertake a massive six-year drainage and "reclamation" program in the country's northern marsh-land. This rationalist-mided program, which Frederick saw as the "taming" and "conquering" of "useless" and "barbarous" nature, created roughly 150,000 acres of arable farmland, but also eliminated vast swaths of natural habitat, destroyed the region's biodiversity, and displaced numerous indigenous communities. With the help of French experts, Frederick also reorganized Prussia's taxation policy, implementing a system of indirect taxation, which was more lucrative than the previous policy of direct taxation. Frederick also commissioned the eminent Prussian merchant Johann Ernst Gotzkowsky to help promote trade. Gotzkowsky directed Frederick to reform the Prussian system of toll levies and import restrictions, and to construct a major a silk factory in an effort to compete with the French silk trade. In 1763, when Gotzkowsky went bankrupt during an Amsterdam-based financial crisis, Frederick took over a porcelain factory of his.
Frederick also presided over national currency reform during his reign. The effects of the Seven Years' War and the acquisition of Silesia had transformed the economy, depreciating the national currency and leading to high nation-wide inflation. The Prussian Mint Edict of May 1763 revalued the national currency, stabilizing the rates of highly depreciated coinage and mandating that the payments of taxes be in currency of prewar value. Other European rulers soon undertook similar monetary reforms, which helped to lower region-wide prices.
Frederick also presided over other important modernization efforts in Prussia, including the establishment of a modern governmental bureaucracy, the cultivation of one of Europe's most highly-regarded educational systems, and the abolition torture and corporal punishment.
After the acquisition of Royal Prussia (West Prussia) in 1772, Frederick also changed his title from the "King "in" Prussia," which had been the royal title used since the coronation of Frederick I, to the "King "of" Prussia," underscoring the increasing prominence of his state and his own importance as a ruler.
Frederick was generally a champion of religious tolerance, including accepting Jesuits, fleeing the suppression of Pope Clement XIV, as teachers in Silesia, Warmia, and the Netze District. He was interested in attracting many skills to his country, whether from Jesuit teachers, Huguenot citizens, or Jewish merchants and bankers, particularly from Spain. He wanted development throughout the country. As an example of this practical-minded but not fully unprejudiced tolerance, Frederick wrote in his "Testament politique" that:
Jews on the Polish border were therefore encouraged to perform all the trade they could and received all the protection and support from the king as any other Prussian citizen. The success in integrating the Jews into those areas of society that Frederick encouraged them in can be seen by the role played by Gerson von Bleichröder in financing Bismarck's efforts to reunite Germany.
As under Frederick much wasteland was made arable Prussia was looking for new colonists. Frederick repeatedly emphasized that nationality and religion were of no concern to him.
Frederick had famous buildings constructed in his capital, Berlin, most of which still exist today, such as the Berlin State Opera, the Royal Library (today the State Library Berlin), St. Hedwig's Cathedral, and Prince Henry's Palace (now the site of Humboldt University). However, the king preferred spending his time in his summer residence Potsdam, where he built the palace of Sanssouci, the most important work of Northern German rococo. Sanssouci, which translates from French as "carefree" or "without worry", was a refuge for Frederick. "Frederician Rococo" developed under Georg Wenzeslaus von Knobelsdorff.