In 1928 Zogu secured the parliament's consent to its own dissolution. A new constituent assembly amended the constitution, making Albania a kingdom and transforming Zogu into Zog I, "King of the Albanians." International recognition arrived forthwith, but many Albanians regarded their country's nascent dynasty as a tragic farce. The new constitution abolished the Senate, creating a unicameral National Assembly, but King Zog retained the dictatorial powers he had enjoyed as President Zogu. Soon after his coronation, Zog broke off his engagement to Shefqet Bey Verlaci's daughter, and Verlaci withdrew his support for the king and began plotting against him. Zog had accumulated a great number of enemies over the years, and the Albanian tradition of blood vengeance required them to try to kill him. Zog surrounded himself with guards and rarely appeared in public. The king's loyalists disarmed all of Albania's tribes except for his own Mati tribesmen and their allies, the Dibra. Nevertheless, on a visit to Vienna in 1931, Zog and his bodyguards fought a gun battle with would-be assassins on the Opera House steps.

Zog remained sensitive to steadily mounting disillusion with Italy's domination of Albania. The Albanian army, though always less than 15,000-strong, sapped the country's funds, and the Italians' monopoly on training the armed forces rankled public opinion. As a counterweight, Zog kept British officers in the Gendarmerie despite strong Italian pressure to remove them. In 1931 Zog openly stood up to the Italians, refusing to renew the 1926 First Treaty of Tiranė. In 1932 and 1933, Albania could not make the interest payments on its loans from the Society for the Economic Development of Albania. In response, Rome turned up the pressure, demanding that Tiranė name Italians to direct the Gendarmerie join Italy in a customs union grant Italy control of the country's sugar, telegraph, and electrical monopolies teach the Italian language in all Albanian schools and admit Italian colonists. Zog refused. Instead, he ordered the national budget slashed by 30 percent, dismissed the Italian military advisers, and nationalized Italian-run Roman Catholic schools in the northern part of the country.

By June 1934, Albania had signed trade agreements with Yugoslavia and Greece, and Mussolini had suspended all payments to Tiranė. An Italian attempt to intimidate the Albanians by sending a fleet of warships to Albania failed because the Albanians only allowed the forces to land unarmed. Mussolini then attempted to buy off the Albanians. In 1935 he presented the Albanian government 3 million gold francs as a gift.

Zog's success in defeating two local rebellions convinced Mussolini that the Italians had to reach a new agreement with the Albanian king. A government of young men led by Mehdi Frasheri, an enlightened Bektashi administrator, won a commitment from Italy to fulfill financial promises that Mussolini had made to Albania and to grant new loans for harbor improvements at Durrės and other projects that kept the Albanian government afloat. Soon Italians began taking positions in Albania8f8 ia's civil service, and Italian settlers were allowed into the country.

Through all the turmoil of the interwar years, Albania remained Europe's most economically backward nation. Peasant farmers accounted for the vast majority of the Albanian population. Albania had practically had no industry, and the country's potential for hydroelectric power was virtually untapped. Oil represented the country's main extractable resource. A pipeline between the Kuēovė oil field and Vlorė's port expedited shipments of crude petroleum to Italy's refineries after the Italians took over the oil-drilling concessions of all other foreign companies in 1939. Albania also possessed bitumen, lignite, iron, chromite, copper, bauxite, manganese, and some gold. Shkodėr had a cement factory Korēė, a brewery and Durrės and Shkodėr, cigarette factories that used locally grown tobacco.

During much of the interwar period, Italians held most of the technical jobs in the Albanian economy. Albania's main exports were petroleum, animal skins, cheese, livestock, and eggs and prime imports were grain and other foodstuffs, metal products, and machinery. In 1939 the value of Albania's imports outstripped that of its exports by about four times. About 70 percent of Albania's exports went to Italy. Italian factories furnished about 40 percent of Albania's imports, and the Italian government paid for the rest.

Data as of April 1992