Within the Swiss Confederation Obwalden is a half canton. This gives Obwalden all the rights and duties of full cantons, with the exception that the canton can only send one deputy to the Council of States. The small size of the canton allows a small government with only five members.

Small and middle-sized businesses dominate the economy of Obwalden. Many of them are specialists in areas such as miniature engines, synthetics, medical equipment or nano technology.

Traditional areas are still of great importance. Particularly forestry and related businesses are significant, as is agriculture. Agriculture in Obwalden is specialized in integrated dairy and meat farming. The farms are still family run.

Tourism is a major sector. Many facilities built for tourism now benefit the local industry and the population. One quarter of the population is directly or indirectly employed in the tourism sector.

In 2007 Obwalden replaced the former degressive income tax (lower tax rates for higher incomes) with a flat 1.8% income tax, which is the lowest in the country. This cantonal tax is in addition to federal and local taxes.

The central location in the Swiss Alps meant that Obwalden was able to establish itself as a significant tourist location in the 19th century. Two of the mountains, namely Pilatus and Titlis, are the main attractions. Winter sports, in particular skiing and snowboarding, attract many tourist. The main resorts are Engelberg, Melchsee-Frutt, Lungern-Schönbüel, Mörlialp and Langis. During the summer, hiking and mountaineering are the main attractions.