The term “territorial waters” is used to refer to bodies of water which are under the direct control of a nation or state. By convention, lakes and rivers within a country are automatically considered territorial waters, since they are bounded by the nation's land. Therefore, the term is usually used specifically in reference to the ocean waters which surround the nation's coastline. In a dispute over territorial waters, the state which controls the waters is known as the littoral state. The issue of territorial waters is very serious, as the claim on these waters also includes the airspace above them and the natural resources below the water.

By convention, merchant ships have what is known as the right of “innocent passage” in territorial waters. Ships which harvest natural resources must apply for permission from the littoral state, as must ships on military exercises. When a hostile ship enters the territorial waters of a nation, the government reserves the right to fire on them without warning; likewise for enemy aircraft and submersibles.

Originally, most nations accepted that territorial sea rights extended three nautical miles from the coastline, with most countries drawing connecting lines between headlands and other protrusions to smooth out their coastlines. In the later part of the 20th century, many nations extended this claim to 12 nautical miles of ocean, and this is conventional in many regions of the world. Most nations have laws governing conduct in their territorial waters, and they actively pursue criminals in their sovereign ocean territory.

Ocean which has not been claimed is generally known as international waters. Conduct on international waters is governed by international treaty, with all nations recognizing that safe passage across the ocean is an important component of international relations and trade. Fishing fleets from all nations may freely use international waters, although treaties may dictate fish quotas and handling procedures to protect fisheries. All nations can also technically exploit mineral resources in international waters, assuming that they can reach them.

Given that the natural resources of the ocean are immense, territorial waters have been a subject of dispute. During the Cod Wars between Iceland and Britain, for example, Iceland extended its claim of territorial waters in an attempt to protect the delicate cod fishery. The British rejected the claim, and a full out war began, with opposing ships ramming reach other, sabotaging nets, and exchanging insults. Fortunately, no one was killed in the Cod Wars, but they did illustrate the importance of territorial waters.

Different nations exert their claims on territorial waters in different ways, with various countries claiming a different radius of ocean and controlling it to varying degrees. Closely neighboring island nations may agree to share responsibility for air traffic control and ship traffic. One of the most audacious claims on territorial waters occurred in 1983, when President Ronald Reagan executed the largest land grab in history, declaring exclusive mineral rights within 200 nautical miles of the American shoreline.