Nakskov is in the inner part of the Western inlet of Lolland, one of the agriculturally richest of the Danish islands. The area was settled during the neolithic period and has been continuously inhabited since. The town received trade privileges in 1266, during the reign of king Erik 5. Glipping. Once the export center of western Lolland, Nakskov thrived on trade, commerce and industry. This changed gradually as overland traffic was enabled by a railway to the neighboring island of Falster in 1875,. The connection to Sjælland and Copenhagen over the Storstrømsbroen bridge in 1937  shifted goods from the port of Nakskov. Traditionally a center of manufacturing and industry, Nakskov has turned to commerce and trade, after the industrial boom in shipbuilding ended when Denmark joined the EEC and subsidies were dismantled.
Nakskov is one of the most environmentally conscious and cleanest towns of Denmark. Technological and environmental enterprises replace heavy industries. In recent years, local government has restored the town.
Boats run from Nakskov to the islands of Nakskov Fjord (Slotø, Vejlø, Enehøje, and Albuen. A ferry connects the Nakskov over the Langeland Belt to Spodsbjerg on the island of Langeland. Bus run within the town and to neighbouring areas. Bike routes follow the dykes encompassing of Lolland.
Large parts of the wetlands around Nakskov were drained in the 19th century. The dyke along the southern shore of the fjord allows walking or biking to Langø. The Danish sugar museum (sukkermuseum) is in Nakskov.