As privy Finance minister, Count Karl von Zinzendorf (1739–1813) introduced a uniform system of accounting for state revenues, expenditures, and debts of the territories of the Austrian crown. Austria was more successful than France in meeting regular expenditures and in gaining credit. However, the events of Joseph II's last years also suggest that the government was financially vulnerable to the European wars that ensued after 1792.

Where Joseph differed from great contemporary rulers, and where he was akin to the Jacobins, was in the intensity of his belief in the power of the state when directed by reason. As an absolutist ruler, however, he was also convinced of his right to speak for the state uncontrolled by laws, and of the sensibility of his own rule. He had also inherited from his mother the belief of the house of Austria in its "august" quality and its claim to acquire whatever it found desirable for its power or profit. He was unable to understand that his philosophical plans for the molding of humanity could meet with pardonable opposition. Joseph was documented by contemporaries as being impressive, but not necessarily likeable. In 1760, his arranged consort, the well educated Isabella of Parma, was handed over to him. Joseph appears to have been completely in love with her, but Isabella preferred the companionship of Joseph's sister, Marie Christine of Austria. The overweening character of the Emperor was obvious to Frederick II of Prussia, who, after their first interview in 1769, described him as ambitious, and as capable of setting the world on fire. The French minister Vergennes, who met Joseph when he was travelling incognito in 1777, judged him to be "ambitious and despotic."

The Balkan policy of both Maria Theresa and Joseph II reflected the Cameralism promoted by Prince Kaunitz, stressing consolidation of the border lands by reorganization and expansion of the military frontier. Transylvania was incorporated into the frontier in 1761 and the frontier regiments became the backbone of the military order, with the regimental commander exercising military and civilian power. "Populationistik" was the prevailing theory of colonization, which measured prosperity in terms of labor. Joseph II also stressed economic development. Habsburg influence was an essential factor in Balkan development in the last half of the 18th century, especially for the Serbs and Croats.

After the death of his father in 1765, he became Emperor and was made co-regent by his mother in the Austrian dominions. As Emperor, he had little true power, and his mother had resolved that neither her husband nor her son should ever deprive her of sovereign control in her hereditary dominions. Joseph, by threatening to resign his place as co-regent, could induce his mother to abate her dislike for religious toleration. He could and did place a great strain on her patience and temper, as in the case of the first partition of Poland and the Bavarian War of 1778–1779, but in the last resort, the Empress spoke the final word. Therefore, until the death of his mother in 1780, Joseph was never quite free to follow his own instincts.

During these years, Joseph traveled much. He met Frederick the Great privately at Neisse in 1769, and again at Mährisch-Neustadt in 1770; the two rulers initially got along well. On the second occasion, he was accompanied by Count Kaunitz, whose conversation with Frederick may be said to mark the starting point of the first partition of Poland. To this and to every other measure which promised to extend the dominions of his house, Joseph gave hearty approval. Thus, when Frederick fell severely ill in 1775, Joseph assembled an army in Bohemia which, in the event of Frederick's death, was to advance into Prussia and demand Silesia (a territory Frederick had conquered from Maria Theresa in the War of the Austrian Succession). However, Frederick recovered, and thereafter became wary and mistrustful of Joseph.

In 1770, at the age of seven, Joseph's only surviving child, Maria Theresa, became ill with pleurisy and died. The loss of his daughter was deeply traumatic for him and left him profoundly grief-stricken and scarred. (Lacking children, Joseph II was ultimately succeeded by his younger brother, Leopold II, Holy Roman Emperor.)

The Budapest District of Józsefváros was named for the Emperor in 1777 and bears this name up to the present.

The Habsburg Empire also had a policy of war, expansion, colonization and trade as well as exporting intellectual influences. While opposing Prussia and Turkey, Austria was friendly to Russia though trying to remove the Danubian Principalities from Russian influence. Mayer argues that Joseph was an excessively belligerent, expansionist leader, who sought to make the Habsburg monarchy the greatest of the European powers. His main goal was to acquire Bavaria, if necessary in exchange for the Austrian Netherlands, but in 1778 and again in 1785 he was thwarted by King Frederick II of Prussia, whom he feared greatly; on the second occasion, a number of other German princes, wary of Joseph's designs on their lands, joined Frederick's side. He also became involved in an expensive and futile war with the Turks (1787–1791). Joseph's participation in the Ottoman war was reluctant, attributable not to his usual acquisitiveness, but rather to his close ties to Russia, which he saw as the necessary price to be paid for the security of his people. After initial defeats, the Austrians won a string of victories in 1789, which would ultimately prove pointless.

The death of Maria Theresa on 29 November 1780 left Joseph free to pursue his own policy, and he immediately directed his government on a new course, attempting to realize his ideal of enlightened despotism acting on a definite system for the good of all. He undertook the spread of education, the secularization of church lands, the reduction of the religious orders and the clergy in general to complete submission to the lay state, the issue of the Patent of Tolerance (1781) providing limited guarantee of freedom of worship, and the promotion of unity by the compulsory use of the German language (replacing Latin or in some instances local languages)—everything which from the point of view of 18th-century philosophy, the Age of Enlightenment, appeared "reasonable". He strove for administrative unity with characteristic haste to reach results without preparation. Joseph carried out measures of emancipation of the peasantry, which his mother had begun, and abolished serfdom in 1781. In 1789, he decreed that peasants must be paid in cash payments rather than labor obligations. These policies were violently rejected by both the nobility and the peasants, since their barter economy lacked money. Joseph also abolished the death penalty in 1787, a reform that remained until 1795.

In 1781–82 he extended full legal freedom to serfs. Rentals paid by peasants were to be regulated by officials of the crown and taxes were levied upon all income derived from land. The landlords, however, found their economic position threatened, and eventually reversed the policy. Indeed, in Hungary and Transylvania, the resistance of the magnates was such that Joseph had to content himself for a while with halfway measures. Of the five million Hungarians, 40,000 were nobles, of whom 4,000 were magnates who owned and ruled the land; most of the remainder were serfs legally tied to particular estates. After the collapse of the peasant revolt of Horea, 1784–85, in which over a hundred nobles were killed, the Emperor acted. His Imperial Patent of 1785 abolished serfdom but did not give the peasants ownership of the land or freedom from dues owed to the landowning nobles. It did give them personal freedom. Emancipation of the peasants from the kingdom of Hungary promoted the growth of a new class of taxable landholders, but it did not abolish the deep-seated ills of feudalism and the exploitation of the landless squatters. Feudalism finally ended in 1848.

His anticlerical and liberal innovations induced Pope Pius VI to pay him a visit in March 1782. Joseph received the Pope politely and showed himself a good Catholic, but refused to be influenced. On the other hand, Joseph was very friendly to Freemasonry, as he found it highly compatible with his own Enlightenment philosophy, although he apparently never joined the Lodge himself. Freemasonry attracted many anticlericals and was condemned by the Church. Joseph's feelings towards religion are reflected in a witticism he once spoke in Paris. While being given a tour of the Sorbonne's library, the archivist took Joseph to a dark room containing religious documents, and lamented the lack of light which prevented Joseph from being able to read them. Joseph put the man at rest by saying "Ah, when it comes to theology, there is never much light." Thus, Joseph was undoubtedly a much laxer Catholic than his mother.

By the 18th century, centralization was the trend in Medicine because more and better educated doctors were requesting improved facilities. Cities lacked the budgets to fund local hospitals, and the monarchy wanted to end costly epidemics and quarantines. Joseph attempted to centralize medical care in Vienna through the construction of a single, large hospital, the famous Allgemeines Krankenhaus, which opened in 1784. Centralization, however, worsened sanitation problems, causing epidemics and a 20% death rate in the new hospital; the city nevertheless became preeminent in the medical field in the next century.

In 1784 Joseph II attempted to make German an official language in Hungary after he had renamed the Burgtheater in Vienna in German National Theatre in 1776. Ferenc Széchényi responded by convening of a meeting and said there: "We'll see whether his patriotism also passes to the Crown." Julius Keglević responded with a letter in German to Joseph II: "I write German, not because of the instruction, Your Grace, but because I have to do with a German citizen." The "German citizen" Joseph II let them bring the Holy Crown of Hungary to Vienna, where he gave the keys of the chest in which the Crown was locked to the Crown guards Joseph Keglević and Miklos Nádasdy. Joseph II refrained from staging a coronation, and Ferenc Széchényi pulled out of politics. The Allgemeines bürgerliches Gesetzbuch also called Josephinisches Gesetzbuch the predecessor of the Allgemeines bürgerliches Gesetzbuch the Civil Code of Austria, which applies to all citizens equally, was published on 1 November 1786 after 10 years work on it since 1776. § 1: "Every subject expects from the territorial Prince security and protection, so it is the duty of the territorial Prince, the rights of subjects to determine clearly and to guide the way of the actions how it is needed by universal and special prosperity." It is a clear distinction between the rights of subjects and the duties of the territorial Prince, and not vice versa. Territorial Prince (Landesfürst) does not mean nationalist Prince (Volksfürst). In Hungary there was no codified civil code until 1959. The Crown was brought back to Hungary in 1790, on this occasion the people held a mass celebration. One reason for his refusal to be crowned with the Holy Crown of Hungary might have been, that Alcuin had written in a letter to Charlemagne in 798: "And those people should not be listened to who keep saying the voice of the people is the voice of God, since the riotousness of the crowd is always very close to madness."

In 1789 he issued a charter of religious toleration for the Jews of Galicia, a region with a large Yiddish-speaking traditional Jewish population. The charter abolished communal autonomy whereby the Jews controlled their internal affairs; it promoted Germanization and the wearing of non-Jewish clothing.

Joseph died on 20 February 1790. He is buried in tomb number 42 in the Imperial Crypt in Vienna. He asked that his epitaph read: "Here lies Joseph II, who failed in all he undertook." Joseph was succeeded by his brother, Leopold II.

After the outbreak of the French Revolution in 1789, Joseph sought to help the family of his estranged sister Queen Marie Antoinette of France and her husband King Louis XVI of France. Joseph kept an eye on the development of the revolution, and became actively involved in the planning of a rescue attempt. These plans failed, however, either due to Marie Antoinette's refusal to leave her children behind in favor of a faster carriage or Louis XVI's reluctance to become a fugitive king. Joseph died in 1790, making negotiations with Austria about possible rescue attempts more difficult. It was not until 21 June 1791 that an attempt was made, with the help of Count Fersen, a Swedish general who had been favored at the courts of both Marie Antoinette and Joseph. The attempt failed after the King was recognized from the back of a coin. Marie Antoinette became increasingly desperate for help from her homeland, even giving French military secrets to Austria. Nevertheless, even though Austria was at war with France at the time, it refused to directly help the by now completely estranged French Queen.

Behind his numerous reforms lay a comprehensive program influenced by the doctrines of enlightened absolutism, natural law, mercantilism, and physiocracy. With a goal of establishing a uniform legal framework to replace heterogeneous traditional structures, the reforms were guided at least implicitly by the principles of freedom and equality and were based on a conception of the state's central legislative authority. Joseph's accession marks a major break since the preceding reforms under Maria Theresa had not challenged these structures, but there was no similar break at the end of the Josephinian era. The reforms initiated by Joseph II were continued to varying degrees under his successor Leopold and later successors, and given an absolute and comprehensive "Austrian" form in the Allgemeine Bürgerliche Gesetzbuch of 1811. They have been seen as providing a foundation for subsequent reforms extending into the 20th century, handled by much better politicians than Joseph II.

In 1888, Hungarian Historian Henrik Marczali published a three-volume study of Joseph, the first important modern scholarly work on his reign, and the first to make systematic use of archival research. Marczali was Jewish and a product of the bourgeois-liberal school of historiography in Hungary, and he portrayed Joseph as a Liberal hero. The Russian scholar Pavel Pavlovovich Mitrofanov published a thorough biography in 1907 that set the standard for a century after it was translated into German in 1910. The Mitrofanov interpretation was highly damaging to Joseph: he was not a populist Emperor and his liberalism was a myth; Joseph was not inspired by the ideas of the Enlightenment but by pure power politics. He was more despot than his mother. Dogmatism and impatience were the reasons for his failures.

Joseph's image in popular memory has been varied. After his death there were many monuments to him built by the central government across his lands. The first Czechoslovak Republic tore down the monuments when they became independent in 1918. While the Czechs credited Joseph II with educational reforms, religious toleration, and the easing of censorship, they condemned his policies of centralization and Germanization that they blamed for causing a decline in Czech culture.

The Austrian-born American scholar Saul K. Padover reached a wide American public with his colorful The Revolutionary Emperor: Joseph II of Austria (1934). Padover celebrated Joseph’s radicalism, saying his “war against feudal privileges” made him one of the great “liberators of humanity.” Joseph’s failures were attributed to his impatience and lack of tact, and his unnecessary military adventures, but despite all this Padover claimed the Emperor was the greatest of all Enlightenment monarchs. While Padover depicted a sort of New Deal Democrat, Nazi historians in the 1930s made Joseph a precursor of Hitler.

A new era of historiography began in the 1960s. American Paul Bernard rejected the German national, radical, and anticlerical images of Joseph and instead emphasized long-run continuities. He argued that Joseph’s reforms were well suited to the needs of the day. Many failed because of economic backwardness and Joseph’s unfortunate foreign policy. British Historian Tim Blanning stressed profound contradictions inherent in his policies that made them a failure. For Example, Joseph encouraged small-scale peasant holdings, thus retarding economic modernization that only the large estates could handle. French Historian Jean Berenger concludes that despite his many setbacks, Joseph’s reign “represented a decisive phase in the process of the modernization of the Austrian Monarchy.” The failures came because he “simply wanted to do too much, too fast.” Szabo concludes that by far the most important scholarship on Joseph is by Derek Beales, appearing over three decades and based on exhaustive searches in many archives. Beales looks at the emperor’s personality, with its arbitrary behavior and mixture of affability and irascibility. Beales shows that Joseph genuinely appreciated Mozart’s music and greatly admired his operas. Like most other scholars, Beales has a negative view of Joseph’s foreign policies. Beales finds that Joseph was despotic in the sense of transgressing established constitutions and rejecting sound advice, but not despotic in the sense of any gross abuse of power.

Joseph is prominently featured in Peter Shaffer's play Amadeus, and the movie based upon it. In the movie, he is played by actor Jeffrey Jones as a well-meaning but somewhat befuddled monarch of limited but enthusiastic musical skill, easily manipulated by Salieri; however, Shaffer has made it clear his play is fiction in many respects and not intended to portray historical reality. Joseph was portrayed by Danny Huston in the 2006 film Marie Antoinette.

Multiple interferences with old customs began to produce unrest in all parts of his dominions. Meanwhile, Joseph threw himself into a succession of foreign policies, all aimed at aggrandisement, and all equally calculated to offend his neighbours—all taken up with zeal, and dropped in discouragement. He endeavoured to get rid of the Barrier Treaty, which debarred his Flemish subjects from the navigation of the Scheldt. When he was opposed by France, he turned to other schemes of alliance with the Russian Empire for the partition of the Ottoman Empire and the Republic of Venice. These plans also had to be given up in the face of the opposition of neighbours, and in particular of France. Then Joseph resumed his attempts to obtain Bavaria—this time by exchanging it for Belgium—and only provoked the formation of the Fürstenbund, organized by Frederick II of Prussia.

Joseph was made a member of the constituted council of state (Staatsrat) and began to draw up minutes for his mother to read. These papers contain the germs of his later policy, and of all the disasters that finally overtook him. He was a friend to religious toleration, anxious to reduce the power of the church, to relieve the peasantry of feudal burdens, and to remove restrictions on trade and knowledge. In these, he did not differ from Frederick, or his own brother and successor Leopold II, all enlightened rulers of the 18th century. He tried to liberate serfs, but that did not last after his death.