After the Bolshevik Revolution, a mainly Russian and Armenian grouping of Baku Bolsheviks declared a Marxist republic in Azerbaijan. Muslim nationalists separately declared the establishment of the Azerbaijan People's Democratic Republic in May 1918 and formed the "Army of Islam," with substantial help from the Ottoman Turkish army, to defeat the Bolsheviks in Baku. The Army of Islam marched into the capital in September 1918, meeting little resistance from the Bolshevik forces. After some violence against Armenians still residing in the city, the new Azeri government, dominated by the Musavat, moved into its capital. Azerbaijan was occupied by Ottoman Turkish troops until the end of World War I in November 1918. British forces then replaced the defeated Turks and remained in Azerbaijan for most of that country's brief period of independence.

Facing imminent subjugation by the Red Army, Azerbaijan attempted to negotiate a union with Persia, but this effort was mooted when the Red Army invaded Azerbaijan in April 1920. Russian leader Vladimir I. Lenin justified the invasion because of the importance of the Baku region's oil to the Bolsheviks, who were still embroiled in a civil war. The Red Army met little resistance from Azeri forces because the Azeris were heavily involved in suppressing separatism among the Armenians that formed a majority in the Nagorno-Karabakh (Daqliq Qarabaq) area of southcentral Azerbaijan. In September 1920, Azerbaijan signed a treaty with Russia unifying its military forces, economy, and foreign trade with those of Russia, although the fiction of Azeri political independence was maintained.
 

The soviet invasion began a seventy-one-year period under total political and economic control of the state that became the Soviet Union in 1922. The borders and formal status of Azerbaijan underwent a period of change and uncertainty in the 1920s and 1930s, and then they remained stable through the end of the Soviet period in 1991.

In late 1921, the Russian leadership dictated the creation of a Transcaucasian federated republic, composed of Armenia, Azerbaijan, and Georgia, which in 1922 became part of the newly proclaimed Soviet Union as the Transcaucasian Soviet Federated Socialist Republic (TSFSR). In this large new republic, the three subunits ceded their nominal powers over foreign policy, finances, trade, transportation, and other areas to the unwieldy and artificial authority of the TSFSR. In 1936 the new "Stalin Constitution" abolished the TSFSR, and the three constituent parts were proclaimed separate Soviet republics.

In mid-1920 the Red Army occupied Nakhichevan, an Azeri enclave between Armenia and northwestern Iran. The Red Army declared Nakhichevan a Soviet socialist republic with close ties to Azerbaijan. In early 1921, a referendum confirmed that most of the population of the enclave wanted to be included in Azerbaijan. Turkey also supported this solution. Nakhichevan's close ties to Azerbaijan were confirmed by the Russo-Turkish Treaty of Moscow and the Treaty of Kars among the three Transcaucasian states and Turkey, both signed in 1921.

Lenin and his successor, Joseph V. Stalin, assigned pacification of Transcaucasia and delineation of borders in the region to the Caucasian Bureau of the Russian Communist Party (Bolshevik). In 1924 the bureau formally designated Nakhichevan an autonomous republic of Azerbaijan with wide local powers, a status it retains today.

The first communist president of Azerbaijan was the activist and writer Nariman Narimanov. In the 'honey moon' period of the Soviet state Narimanov became a popular leader, although responsible for numerous killings and deportations. In the end Narimanov was murdered by Stalin's agents (1925).

The 1930's brought an intensification of the purges under Stalin's paranoia. The crackdown on all forms of religion was particularly hard, targeting not only the people but also the buildings. During this period the both magnificent Alexanber Nevski Cathedral and the holiest islamic site in Baku, the Bibi Heibat shrine, were demolished.