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It is situated in the valley of theLoquitz River, a tributary of theSaale, in theThuringian-Franconian Highlands of theThuringian Slate Mountains and theFranconian Forest mountain ranges. Located 28 kilometres (17 mi) north ofKronach, the Bavarian border with the state ofThuringia runs about 3 km (1.9 mi) north of the town centre, with ThuringianSaalfeld in a distance of c. 18 km (11 mi) down the Loquitz. Ludwigsstadt is the only municipality of the State of Bavaria located north of theRennsteig ridge.
It is the second-northernmost town in Bavaria, behindFladungen.
The settlement in the Landgraviate of Thuringia was first mentioned in a 1269 deed asLudwichsdorf, probably named after a localVogt official of the Counts ofWeimar-Orlamünde. In 1427 the area around historic Lauenstein Castle was acquired by theHohenzollern ElectorFrederick I of Brandenburg, who added it as a northern exclave to his FranconianPrincipality of Kulmbach. Ludwigsstadt receivedtown privileges in 1490, which it again lost in 1525, as the citizens joined a rebellion against the landlords during theGerman Peasants' War.