On December 9, 1898, Prince George of Greece arrived in Souda and became the ambassador of the newly born Cretan State. After the foundation of the "Cretan State", the city of Chania met its greatest flourishment in history as the capital of Crete. Since then, Chania became a great administrative, intellectual, commercial and industrial center. The new Cretan State had its own flag and currency -the Cretan drachma-, the Bank of Crete was founded, as well as the Constitution of the Cretan State, the Cretan police, the official newspaper of the Cretan State and the elections for the selection of state representatives.  In the beginning of the 20^th century, the city of Chania has a population of about 21,000 residents, according to the 1900 census. The city developed to an organized multicultural center with an original Cretan character, many picturesque streets, small plateaus and Venetian, Turkish and Greek style buildings. New districts developed outside the city walls with beautiful neoclassic buildings and farms.

During the years of the Cretan State many reconstruction works took place and the famous Municipal Market was built. The educational level of its resident was increased significantly, as new schools and educational center were founded. In 1899, the famous philological association "Chrysostomos" was founded and the foundation of many other educational, intellectual, charity and athletic associations followed. Many cultural events were organized with theatrical, music and dance performances from Greece and abroad.  The phonograph and the cinema were introduced in the city of Chania during the same period, and many newspapers and magazines are published with valuable material. In 1901, the city of Chania pioneers in the women's movement, as the minister Georgios Daskalogiannis from Sfakia submits a proposal for the emancipation of women.   

Since the beginning of the 20^th century, serious political moves towards the unification of Crete with Greece started to take place. The "Cretan Issue" was resolved after the end of the Balkan Wars. The unification of Crete with Greece was finally realized on the 1^st of December 1913, after long diplomatic procedures, when the Greek flag was first raised on the "Firka" fortress.