Internal borders, Transkei in red
The South African government set up the area as one of the two homelands for Xhosa-speaking people in Cape Province, the other being Ciskei; it was given nominal autonomy in 1963. Although the first election was contested and won by the Democratic Party, whose founder Chief
Victor Poto was opposed to the notion of Bantustan independence, the government was formed by the Transkei National Independence Party. Of the 109 members in the regional parliament, 45 were elected and 64 were held by ex officio chiefs.
The entity became a nominally independent state in 1976 with its capital at Umtata (now Mthatha), although it was recognised only by South Africa and later by the other nominally independent republics within the TBVC-system. Chief Kaiser Daliwonga Matanzima was Transkei's Prime Minister until 1979, when he assumed the office of President, a position he held until 1986.
South African prime minister B. J. Vorster justified the declaration of Transkei as an independent republic by referring to "the right of every people to have full control over its own affairs" and wished "Transkei and its leaders God's richest blessings on the road ahead."
My heritage commands me in the name of [Xhosa] nationhood to sacrifice the best of my abilities to the advancement of my own nation in its own country […].
- Kaiser Matanzima
A press release by the African National Congress at the time rejected the Transkei's independence and condemned it as "designed to consolidate the inhuman policies of apartheid". During its thirty-first session, in resolution A/RES/31/6 A, the General Assembly of the United Nations referred to Transkei's "sham independence" as "invalid," re-iterated its labeling of South Africa as a "racist régime," and called upon "all [g]overnments to deny any form of recognition to the so-called independent Transkei." An article published in Time Magazine opined that though Transkei declared independence theoretically as a "free Black state", Matanzima ruled as the dictator of a one-party state. He banned local opposition parties and bought farmlands for himself and his family offered by the South African government at subsidised prices.
Matanzima published Independence my Way in 1976, a book in which he argued that true liberation could only be gained through a confederation of black states; he described Transkei as a positive precedent and maintained that the liberation struggle chosen by the ANC would not be successful.
The United Nations Security Council supported moves not to recognise Transkei, and in Resolution 402 (1976) condemned moves by South Africa to pressure Lesotho to recognise Transkei by closing its borders with the country.
Throughout its existence, Transkei's economy remained dependent on that of its larger neighbour, with the local population being recruited as workers into South Africa's Rand mines.
Because of a territorial dispute, Matanzima announced on 10 April 1978 that Transkei would break all diplomatic ties with South Africa, including a unilateral withdrawal from the non-aggression pact between the two governments, and ordered that all South African Defence Force members seconded to the Transkei Army should leave. This created the unique situation of a country refusing to deal with the only internationally recognised nation it was recognised by. Matanzima soon backed down in the face of Transkei's dependence on South African economic aid.
During his reign, Matanzima arrested state officials and journalists at will; in late 1979, he detained the head of the newly formed Democratic Progressive Party, Sabata Dalindyebo, king of the Thembu people and vocal opponent of apartheid, for violating the dignity and injuring the reputation of the president. Dalindyebo went into exile in Zambia, a move that marked the end of official opposition politics in Transkei, and in the 1981 election, the ruling Transkei National Independence Party was re-elected, gaining 100% of all open seats.
On 20 February 1986, faced with South African evidence of corruption, Matanzima was forced to retire as President. He was succeeded by his brother George. Kaiser Matanzima was still described as Transkei's effective leader for a time, but soon the two fell out and Kaiser was temporarily detained in the Transkei gaols in 1987; upon release, he was restricted to Qamata.
In 1987, Transkei, a larger, wealthier and more populous entity, which had long sought the annexation of Ciskei, and had undertaken a series of military raids on Ciskei  attempted to seize control of Ciskei, in an attack on leader Lennox Sebe's compound, with the apparent goal of taking him hostage, in order to force a merger of the two Bantustans. The South African government intervened to warn the Transkei government off.
General Bantu Holomisa of the Transkei Defence Force forced the resignation and exile of Prime Minister George Matanzima in October 1987 and then overthrew Matanzima's successor, Prime Minister Stella Sigcau in December 1987. Holomisa became the Head of State, and the Transkei was from that point onwards effectively in (often uneasy) alliance with the African National Congress and provided a relatively safe area for the ANC's activities. In 1990, Holomisa himself evaded a failed attempt to be ousted from his post, and when asked about the fate of his opponents, he claimed that they had died in the ensuing battles with TDF soldiers. It was later found that those deemed responsible for the foiled coup had only suffered minor injuries, but were subsequently executed without trial.
The Transkei government was a participant in the Codesa negotiations for a new South Africa. The territory was reincorporated into South Africa on 27 April 1994, and the area became part of the Eastern Cape province.