The River Paraguay is born south of Diamantino in Mato Grosso, Brazil. It follows a generally southwesterly course, passing through the Brazilian city of Cáceres. It then turns in a generally southward direction, flowing through the Pantanal wetlands, the city of Corumbá, and then running close to the Brazil-Bolivia border for a short distance. The river runs close to the border but is actually located within the Brazilian side. From the city of Puerto Bahia Negra, Paraguay, the river forms the border between Paraguay and Brazil, flowing almost due south for approximately 220 kilometers before the confluence with the Apa River. The Paraguay makes a long, gentle curve to the south-southeast before resuming a more south-southwest course, dividing the country of Paraguay into two distinct halves: the Gran Chaco region to the west, a largely uninhabited semi-arid region; and the eastern forested departments of the country, accounting for some 98% of the country's inhabitants. As such the river is considered perhaps the key geographical feature to the country with which it shares its name. Some 400 kilometers after flowing through the middle of Paraguay, at the confluence with the Pilcomayo river and passing the Paraguayan capital city, Asunción, the river forms the border with Argentina, flowing generally south-southwesterly for another 275 kilometers before it reaches its end, joining with the Parana River.

The River Paraguay is the second major river in the Río de la Plata watershed, covering a vast area of land that includes major portions of northern Argentina, southern Brazil, Uruguay, parts of Bolivia and the entire country of Paraguay. Unlike many of the other great rivers of the Parana basin, the Paraguay has not been dammed for hydroelectric power generation, and as such it is navigable for a considerable distance, second to the Amazon River only in terms of navigable length on the continent. This makes it an important shipping and trade corridor, providing a much needed link to the Atlantic Ocean for the otherwise landlocked nations of Paraguay and Bolivia. It serves such important cities as Asunción and Concepción in Paraguay and Formosa in Argentina. The river is also a source of commerce in the form of fishing and providing irrigation for agriculture along its route. It also serves as a way of life for a number of poor fishermen who live along its banks and make the majority of their income selling fish in local markets, as well as supplying a major source of sustenance for their families. This has created issues in large cities such as Asunción, where poverty stricken farmers from the country's interior have populated the river's banks in search of an easier lifestyle. Seasonal flooding of the river's banks forces many thousands of displaced residents to seek temporary shelter until the waters recede from their homes. The Paraguayan military has been forced to dedicate land on one of its reserves in the capital to emergency housing for these displaced citizens.

The Paraguay River is the primary waterway of the Pantanal Wetlands that encompass southern Brazil, northern Paraguay and parts of Bolivia. Although largely ignored by the international media in favor of more famous wetlands along the Amazon to the north, the Pantanal is actually the world's largest tropical wetlands ecosystem and is largely dependent upon waters provided by the Paraguay. Owing to its importance as a navigable waterway serving Brazil, Argentina and Paraguay it has also been the focus of commercial and industrial development in those nations. In 1997 the governments of the nations in the Río de la Plata basin proposed a bold plan under the Hidrovia Inter?Governmental Commission (CIH) agency to develop the rivers into an industrial waterway system to help reduce the costs of exporting goods from the area, in particular the soybean crop that the area has embraced. The plan proposed constructing more hydroelectric dams along some of the waterways, along with a massive effort to restructure the navigable waterways - most notably the Paraguay - through dredging of the waterway, rock removal, and channel restructuring. Studies indicated that the rechanneling of the Paraguay would have lowered the river levels by several feet and have a devastating impact on the Pantanal wetlands, but the member nations of the CIH were determined to go ahead with the plan. An effort by the Rios Vivos coalition to educate people on the effects of the project was successful in delaying the project, and the nations involved have agreed to reformulate their plan. The final plan is still uncertain, however, along with the final effect it will have on the Pantanal and the ecology of the entire Río de la Plata basin is currently undetermined. The controversy as to whether or not the project will have a disastrous effect on the ecology, as well as the potential economic gains, continues to this day.