It lies approximately 11 kilometres (7 mi) south-west of Kłodzko, and 89 kilometres (55 mi) south-west of the regional capital Wrocław. As at 2006, the town has a population of 6,900.
Polanica-Zdrój was first documented in 1347 under the name Heyde; at the time it belonged to the House of Glaubitz, Bohemia within the Holy Roman Empire. In 1645 the town was destroyed by Swedish troops during the Thirty Years' War. In 1742 the town – like all the area – changed into the hands of Brandenburg-Prussia, becoming part of sovereign Prussia with the dissolution of the Holy Roman Empire in 1806. The town grew quickly during the 19th century, becoming a popular health resort in the 1870s, after Prussia had become a component state of Germany in 1871. In 1890 a rail connection to Glatz was completed. The town became part of Poland after World War II ended in 1945 and wasethnically cleansed according to the post-war Potsdam Agreement. The native German populace was expelled and replaced by Poles.
The amateur film festival POL-8 takes place in Polanica-Zdrój. The town is twinned with Telgte in Germany. Since 1963, it has hosted the annual Akiba Rubinstein Memorial chess tournament, honoring the great Polish Grandmaster (1882–1961). This event always attracts a high-class field of top players.