The aim of this paper is to analyze fundamental factors which form and profoundly shape security and defense policy of the Republic of Latvia. One can argue that historical background, geographical location, common institutional history within the former Soviet Union, the Russia factor, the relative smallness of the territory of state and the population, the ethnic composition of the population, the low density of the population and rather limited financial and manpower resources available for the defense of the Republic of Latvia are the key factors of influence on the state security and defense policy. The core principles of the security and defense policy of Latvia are the membership in powerful global military alliance of NATO and bilateral strategic partnership with the United States. However, security and defense cooperation among the three Baltic States as well as enhanced cooperation within the Baltic-Nordic framework is seen as an important supplementary factor for the increased security of the Republic of Latvia. Latvia has developed a sustainable legal and institutional framework in order to contribute to state security and defense; however, security challenges and significant changes within the global security environment of the twenty-first century will further challenge the ability of the Republic of Latvia to sustain its current legal framework, and more importantly, current institutional structure of Latvian security and defense architecture. Significant internal and external challenges will impact the fundamental pillars of Latvian security and defense policy, such as American strategic shift to the Pacific, and lack of political will to increase defense budgets in European part of NATO. It has to be clear that very independence, security and defense of the Republic of Latvia depend on the ability of NATO to remain an effective organization with timely and efficient decision-making, and the ability of the United States to remain militarily effective and committed to the security and defense of Europe.