The Dutch , with naval bases in the Caribbean and a powerful fleet, were the best placed to move against Brazil. A mixture of greed and pressing political motives lay behind the Dutch decision. From 1580 to 1640 Portugal was united with Spain, against whom the Dutch had fought a bitter war of independence, and they were still menaced by the Spanish presence in Flanders. Anything that distracted Spain from further designs on the fledgling United Provinces seemed like a good idea at the time. As it turned out, neither the Spanish nor the Portuguese crowns played much of a role in the war: it was fought out between the Dutch, in the mercantile shape of the Dutch West India Company, and the Portuguese settlers already in Brazil, with Indian and mameluco (mixed race) backing. Although the Dutch occupied much of the Northeast for thirty years, they were finally overcome by one of South America's first guerrilla campaigns, in a war made vicious by the Catholic-Protestant divide that underlay it: few prisoners were taken and both sides massacred civilians.

In 1624 a Dutch fleet appeared off Salvador, taking the governor completely by surprise, and the city by storm. After burning down the Jesuit college and killing as many priests as they could find (like the good Calvinists they were), they were pinned down by enraged settlers for nine months and finally expelled in 1625 by a hastily assembled combined Spanish and Portuguese fleet - the only direct intervention made by either country in the conflict. When a Dutch force was once more repulsed from Salvador in 1627, they shifted their attention further north and found the going much easier: Olinda was taken in 1630, the rich sugar zones of Pernambuco were occupied, and Dutch control extended up to the mouth of the Amazon by 1641. With settlers moving in, a strong military presence and a fleet more powerful than Portugal's, Dutch control of the Northeast looked like becoming permanent.

Maurice of Nassau was sent out as governor of the new Dutch possessions in Brazil in 1630, as the Dutch founded a new capital in Pernambuco: Mauritzstaadt, now Recife. His enlightened policies of allowing the Portuguese freedom to practise their religion, and including them in the colonial government, would probably have resulted in a Dutch Brazil had it not been for the stupidity of the Dutch West India Company. They insisted on Calvinism and heavy taxes, and when Maurice resigned in disgust and returned to Holland in 1644 the settlers rose. After five years of ambushes, plantation burnings and massacres, the Brazilians pushed the Dutch back into an enclave around Recife. The Dutch poured in reinforcements by sea, but their fate was decided by two climactic battles in 1648 and 1649 at Guararapes , just outside Recife, where the Dutch were routed and their military power broken. Although they held on to Recife until 1654, the dream of a Dutch empire in the Americas was over, and Portuguese control was not to be threatened again until the nineteenth century.