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The Free City of Gdansk (German: Freie Stadt Danzig; Polish: Wolne Miasto Gdansk) was an autonomous Baltic Sea port and city-state established on January 10, 1920, in accordance with the terms of Part 3 Section 11 of the Treaty of Versailles of 1919, with the official proclamation taking place on November 15, 1920. Sopot came under the jurisdiction of the Free City of Gdansk, partially due to the fact that a majority of citizens were of German origin, and also because of its historical connection to the bigger city of Gdansk . Within the borders of the Free City of Gdansk, which covered 1892 square kilometres, there was a population of 356740. Sopot was just a small part of this, with only 9 square kilometres, but its area expanded slightly as a result of the new situation. The city gained a lot of forest area, which was necessary to provide the city with fresh water. From the north and west Sopot borders with Poland , from which, due to a land correction gained about 538 hectares of land. At this time, Sopot was characterized by dense development. This situation lasted until the German invasion of Poland in 1939, and it wasn't until another 6 years at the end of war in 1945 when Sopot was eventually returned to Poland .

In May 1927, Sopot had 2055 buildings, for every square kilometre there were 227.3 buildings, compared to Gdansk , which had only 190.5 building per square kilometre. 70% of the building served as residences and 10% were places of work, including shops, hotels etc. 20 buildings served as a public places, although Sopot was a tourist resort. 20 buildings served as small sized factories and 30 buildings as various repair and service shops. After WWI, the influence of the local administration was growing steadily, and as a result, City Hall was expanded and modernized. The city was represented by mayor. During that time the most controversial person was Erich Laue, (mayor from 1923 - 1930) who defrauded public money for construction of a new hotel. In 1933 he was arrested and later committed suicide in prison. During WWI, the development of the city was halted. After this there was an effort undertaken to revive the city and bring it again to the attention of Europe , back to the time before war, when it was one of the most famous summer destinations, mostly for the upper class. Despite the post-war recession and the later worldwide depression of 30s, the development and new construction were at a steady pace and there was no shortage of entertainment of new attractions, which attracted those few who could afford to go there.

A great effort was taken to keep the town's gardens, beach, forest and the rest in clean and organized shape. There was no shortage of initiatives by City Hall to have a beautiful town. In the 1920's the city had 16 hotels and 20 boarding houses. Rich tourists could rent villas and the less fortunate had a choice of many private rooms and apartments. The role played by Sopot reflected the number of tourists visiting the town. In 1934 it had 19833 guests compared to 2289 in nearby Oliwa and 311 in Brzezno. Sopot offered a wide selection of entertainments, of which the casino played a big role, and was known by many throughout Europe . Sopot was often referred to as the Monte Carlo of the North. The casino was opened in 1920 by some entrepreneurs from Berlin . It was initially situated in the spa house, but expanded after 3 years. People could play roulette and cards. The casino was open during and after peak season and also offered a reading room, buffet and rest rooms. The opening of the casino was supposed to provide extra income for the city and it also served as another attraction and way for rich tourists to spend money. Because of the income coming from the casino, a few new investments were undertaken like the construction of a new Grand Hotel, which later became part of the town's history and one of the most famous hotels in the north. Grand Hotel was also made famous by the many state heads that stayed here.

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