The controversy regarding the political status of Taiwan hinges on whether Taiwan, including the Pescadores (Penghu), should remain the effective territory of the Republic of China (ROC), be absorbed by the People's Republic of China (PRC), or become the Republic of Taiwan. The controversy over the political status of the Republic of China hinges on whether its existence as a state is legitimate and recognized.

Currently, Taiwan, Penghu, Kinmen (Quemoy), Matsu and some other minor islands effectively make up the jurisdiction of the state known as the Republic of China. The ROC ruled mainland China, and claimed sovereignty over Outer Mongolia and Tannu Uriankhai (part of which is present day Tuva) before losing the Chinese Civil War and relocating its government to Taipei in December 1949.

Since the ROC lost its United Nations seat in 1971 (replaced by the PRC), most sovereign states have switched their diplomatic recognition to the PRC, recognizing or acknowledging the PRC to be the sole legitimate representative of all China. As of January 2008, the ROC maintains official diplomatic relations with 23 sovereign states, although de facto relations are maintained with nearly all others. Agencies such as the Taipei Economic and Cultural Representative Office and American Institute in Taiwan operate as de facto embassies without official diplomatic status.

The ROC government has in the past considered itself to be the sole legitimate government over China, as well as its former territories. This position started to be largely ignored in the early 1990s, changing to one that does not challenge the legitimacy of PRC rule over mainland China. However, the ROC's claims have never been renounced through a constitutional amendment; both the PRC and the ROC carry out cross-strait relations through specialized agencies (such as the Mainland Affairs Council of the ROC), rather than through foreign ministries. Different groups have different concepts of what the current formal political situation of Taiwan is. (See also: Taiwan independence, Chinese reunification, and Cross-Strait relations)

In addition, the situation can be confusing because of the different parties and the effort by many groups to deal with the controversy through a policy of deliberate ambiguity. The political solution that is accepted by many of the current groups is the following perspective of the status quo: that is, to unofficially treat Taiwan as a state and at a minimum, to officially declare no support for the government of this state making a formal declaration of independence. What a formal declaration of independence would consist of is not clear and can be confusing given the fact that the People's Republic of China has never controlled Taiwan since its founding and the fact that the Republic of China, whose government controls Taiwan, considers itself a de jure sovereign state. The status quo is accepted in large part because it does not define the legal status or future status of Taiwan, leaving each group to interpret the situation in a way that is politically acceptable to its members. At the same time, a policy of status quo has been criticized as being dangerous precisely because different sides have different interpretations of what the status quo is, leading to the possibility of war through brinkmanship or miscalculation.