Likely established sometime around the late 7th Century, Venice's lagoon-locked location was the result of Byzantine settlers attempting to hide from Lombard invaders. By the Middle Ages, the city had grown into a great naval power. Its strategic position at the top of the Adriatic meant that ships taking goods inland had to go through Venice, filling its coffers with money and commerce.
Entering the late Middle Ages, Venice exercised influence over both its neighbouring states and the Church. When the Fourth Crusade rolled around in 1202, the crusaders required transport on Venice's ships, which the Venetian Doge, Enrico Dandolo, agreed to on the condition that the crusaders take the Dalmatian city of Zadar and then capture Constantinople.
When Constantinople fell, the city was sacked by the Venetian fleet, which stole, among other things, four bronze horses as ornaments for the Basilica San Marco. Now, that's what I call a faith-based initiative.
As Venice's wealth grew, so did its fleet. Through sea battles she gained Byzantine territory, Hungarian territory and destroyed the Genoese fleet. Venice's fortunes were so entwined with the sea that every year the Doge would throw a ring into the lagoon while saying in Latin: "We wed thee, sea, in the sign of the true and everlasting Lord". Despite much eye-raising about the godliness of sea-human relations, the Pope sanctioned the marriage.
By the end of the 15th Century, Venice was quite possibly the wealthiest city in the world and the second-largest city in Europe after Paris, but the rest of Europe had had enough. France, Spain, Austria, and Hungary joined together in the League of Cambrai, partnering with Pope Julius II to crush Venice.
But Venice was able to weather the storm, ultimately keeping her territories even after several disastrous defeats. But she would never expand again. Turkey attacked in the 18th Century, and Venice began a long decline which ultimately ended in 1797, when Austria took control of the Republic.