Nizam Au Khan was the fourth son of Nizam-ul-Mulk Asaf Jah I. He was born on 24th February, 1734 and assumed the subedari of the Deccan at the age of 28 years and ruled the Deccan for almost 42 years. The reign of Nizam Ali Khan was one of the important chapters in the history of the Asaf Jahi dynasty not only because it was the longest but also because it was the most eventful and challenging. He ruled the Deccan at a most critical period and saved the Asaf Jahi dynasty from decline. Most challenging among his rivals for the possession of the Deccan were the Marathas. Nizam Ali Khan became the subedar of the Deccan on 8th July, 1762 and made Vithal Sunder, a Brahmin, his Diwan and gave him the title of Raja Partapwant. However, Partapwant died in 1765 in an encounter with the Marathas. Nizam Ali Khan then appointed Musa Khan as his Diwan with the title Nawab Rukn-ud-Daula. Soon after assuming the subedari of the Deccan, Nizam Au Khan streamlined the administration, settled the affairs with an alliance with the French and the British. He also maintained friendly relations with Mysore. Thus with tactful dealing with the internal and external forces he saved the Dominion from decline.

In 1763, Nizam Ali Khan took a wise decision and shifted the capital of the Deccan from Aurangabad to Hyderabad as Aurangabad was very close to Maratha territory and therefore more prone to aggression. Hyderabad was more centrally located and better suited as the capital of the Deccan. As a result of this, there was a rapid economic development and expansion of the city. The next most important task of Nizam Ali Khan was the restoration of the territory which had been lost to the Marathas.

Nizam Ali Khan, in alliance with Raghunath Rao, attacked the Marathas and defeated them near Ahmednagar. As a result of this victory, the Marathas returned to the Nizam the forts of Daulatabad, Sannrai, Ahmednagar and Asirgarh with an annual revenue of Rs. SI lakh. However, hostilities with the Marathas continued. Salabat Jung, the brother of Nizam Ali Khan, bestowed on 1-lyder Ali the title of ‘Hyder Ali Khan’ and granted him the subedari of Sira. In 1766 the Nizam signed a treaty with the British whereby in return of Northern Circars, the British agreed to furnish Nizam Ali Khan with a subsidiary force as and when required and to pay Rs. 9 lakh per annum when the assistance of the troops was not required. The Nizam in accordance with the agreement was to continue to assist the British with his troops. The British were on hostile terms with Hyder Ali of Mysore.

As a result of the treaty of 1766 the British compelled the Nizam to disassociate himself from Ryder Au and another treaty was signed by the British with the Nizam and the Nawab of Carnatic. In 1768 yet another treaty was signed by the Nizam and the British and they mutually agreed to alter the terms of the earlier treaty wherein they had agreed to assist each other with troops. The British agreed to furnish the Nizam with two battalions subject to the condition that these troops would not be employed against anybody who was an ally of the British. The Marathas were a permanent danger to the Nizam and therefore he wanted to form an alliance with Hyder Ali. The Nizam deputed Mir Abul Qasim (Mir ALam) to Calcutta to consult Lord Cornwallis. The outcome of his negotiations was the treaty of 1790 by which the British and the Marathas got together to crush Tipu Sultan of Mysore who succeeded Hyder Au. In 1791 the allies marched and defeated Tipu Sultan and the treaty of Seringapatnam was signed in 1792. Later the triple alliance with the British and the Marathas failed and the latter turned their attention to the Nizam. The Marathas claimed Chauth and Sardeshmukhi from the Nizam and they rejected any arbitration by the British.

The Nizam and the Marathas could not settle their disputes through negotiations. The armies of the Nizam and the Marathas met at Kharda on 11th March, 1795. The Nizam’s army was defeated and peace was made with the surrender of Amir-ul-Umara to the Marathas who kept him hostage in Poona. As a result of his defeat the Nizam had to cede territories yielding a revenue of Rs. 34 lakh. The failure of the British to assist the Nizam during the battle of Kharda gave rise to anti-British feelings in 1-lyderabad. The Nizam, unhappy with the British attitude, dismissed the two British battalions stationed in Secunderabad. Tipu Sultan tried to have friendly relations and defensive alliance with the Nizam with the help of Imtiaz-ud-dauLa, a nephew of the Nizam. The court nobles advised the Nizam against any alliance with Tipu Sultan. At this stage, Azam-ul-Umara who had been arrested by Marathas was released. He was pro-British and against taking the help of Tipu Sultan and the Raymond Corps. However, Raymond died on 25th March, 1798.

Lord Mornington, the new Governor General, wanted close alliance with Hyderabad and disbandment of the French Corps from the Nizam’s services. As a result of prolonged negotiations the treaty of 1798 - “Subsidiary Alliance” was signed which provided for an increase in the British troops in Hyderabad from two battalions to six battalions. As a result of this treaty Nizam had to pay Rs. 34 lakh annually and disband the French corps. The main aim of this alliance with the British was to keep the Marathas off and to get release from payment of Chauth and Sardeshmukhi. Unfortunately, the treaty of 1798 did not provide any security to the Nizam against the Marathas. On the contrary it established the British influence in Hyderabad. The British were not keen to help the Nizam against the Marathas.

After the treaty of 1798, Bolarum became one of the largest British cantonments in the South with the stationing of a large number of British troops. For the welfare of the people and economic development of the Dominion, the Nizam concluded a treaty with the British in 1802 which provided for free transit of articles of commerce between the State and British territory. Nizam Au Khan was the absolute sovereign of the State as Mughal Subedar of the Deccan. During his reign the Chief Minister was called the Diwan and the army was directly under the Nizam. The military officers were the ‘Mansabdars’ the ‘Paigah’ nobles, the Jamedars etc. The Paigah nobles maintained an army for the protection of the Nizam and the State and obeyed the orders of the ruler. However, the Paigah nobles carried on internal management of their estates independently without any outside interference. Generally they followed the Mughal tradition which was brought by their ancestors from the Mughal Court of Delhi. There was no separate department to look after the revenue of the State.

Territories were given on contract and the contractors were known as taluqdars. They collected land revenue and deposited it into the State treasury. The taluqdars also maintained troops for the protection of the Nizam in the districts. The whole territory of the State was divided mainly into three categories namely “Khalsa”, “Paigah” and ‘Jagirs’. Later on Sarf-e-khas was added. The administration of justice was based on Islamic law. After a long, strenuous and successful reign of 42 years, Nizam Au Khan died on 6th August, 1803, at the age of 69. He was buried at Mecca Masjid by the side of his mother Umda Begum.