He hailed from Caiyang (modern Zaoyang, Hubei) and was a ninth-generation descendant of Liu Bang 劉邦 (r. 206-195 BCE), the founder of the Han dynasty 漢 (206 BCE-220 CE). In the last years of the reign of the usurper Wang Mang 王莽 (r. 8-23 CE), when the peasant rebellions of the Red Eyebrows 赤眉 and of Lulin 綠林 sweeped the country, a certain Li Tong 李通 prognosticated that the house of Liu would rise again and that someone with the surname of Li would be their counsellor. This prophesy was one reason for Liu Xiu to raise weapons against Wang Mang.
Together with his older brother Liu Yin 劉縯 he assembled quite a few distant relatives, retainers and local magnates around him, the so-called Chongling army 舂陵軍. They joined the Lulin rebels and their leader Liu Xuan 劉玄, who was soon able to proclaim himself emperor of the revived Han dynasty. Liu Yin was appointed Grand Minister of Education (da situ 大司徒), and Liu Xiu Chamberlain for Ceremonials (taichang 太常). In 23 CE Wang Mang, still emperor, sent out a large army under the commands of Wang Yi 王邑 and Wang Xun 王尋 to encircle the troops of the Lulin rebels at Kunyang 昆陽 (modern Yexian 葉縣, Henan). Liu Xiu united his forces with those of Wang Feng 王鳳 (d. 22 CE) and Wang Chang 王常 (d. 36 CE) and utterly defeated Wang Mang's troops. This victory was the final blow to Wang Mang's usurpatorious rule.
Liu Xuan was envious of the victory of the brothers Liu Xiu and Liu Yin and felt threatened by their military strength, especially because they more and more became estranged from the original peasant rebellion of Lulin. Liu Xuan (called the Gengshi Emperor 更始帝 because Gengshi 更始 "New Beginning" this was his reign motto), had Liu Yin assassinated. Liu Xiu escaped the same fate by immediately declaring his loyalty to Liu Xuan. He was rewarded with the title of "Great General Smashing the Enemy" (polu da jiangjun 破虜大將軍), was given the title of Marquis of Wuxin 武信侯 and appointed to the post of Minister of War (da sima 大司馬).
After the death of Wang Mang, Liu Xuan took residence in Luoyang 洛陽 (modern Luoyang, Henan) and sent out Liu Xiu to pacify the regions north of the Yellow River. He killed Wang Lang 王郎, who had adopted the title of emperor in Handan 邯鄲 (modern Handan, Hebei) and was for this victory rewarded with the title of Prince of Xiao 蕭. This region became his stronghold from which he would fight against Liu Xuan. Liu Xu put down the last peasant rebellions, and now, strong enough, refused to see himself a mere subject of Liu Xuan. At the latter's court, Liu Xiu was dubbed the "Tongma Emperor" 銅馬帝, according to his victory over the peasant army of the place with the same name.
Liu Xiu's fights against the peasant uprisings demonstrated that he now felt free from any obligations towards the former rebels of Lulin and again became someone of the Han nobility. He sent out Wu Han 吳漢 (d. 44 CE) to kill Liu Xuan's minister Xie Gong 謝躬 (d. 24 CE). In the summer of 25 CE, Liu Xiu proclaimed himself emperor and decided to reside in Luoyang, and not in Chang'an 長安 (modern Xi'an 西安, Shaanxi), the capital during the Former Han period 前漢 (206 BCE-8 CE).
Although being the same dynasty ruling for more than 400 years, the Han is by historians divided into the Former and the Later Han periods, or, according to the geographical location of the capitals, Western and Eastern Han. Liu Xuan is not counted as a ruler of the Later Han, in spite of his efforts to bring down the usurper Wang Mang.
In the third year of his reign, Liu Xiu, whose posthumous dynastic title is Emperor Guangwu "the Brilliant-Martial", smashed the last resistance of the Red Eyebrows rebels. In the following years, he suppressed a series of other uprisings lead by Peng Long 彭寵 (in the region of modern Beijing), Qin Feng 秦豐 (in modern Hunan) and Zhang Bu 張步 (in modern Shandong), Li Xian 李憲, Dong Xian 董憲 and Pang Meng 龐萌. He was also able to convince the strongmen of the western regions (modern Gansu), Dou Rong 竇融, to submit. Emperor Guangwu defeated Wei Ao 隗囂 (Gansu) and Gongsun Shu 公孫述 (in modern Sichuan) and forced Lu Fang 盧芳 to escape to the land of the steppe people of the Xiongnu 匈奴. It had taken him twelve years to unify the empire again under one central government in the capital of Luoyang.
For the strenghening of the central government, Emperor Guangwu tried to disempower the local officials in favour of those in the capital and refrained from promoting too many persons because of merit or birth. Instead, he bestowed them with brevet titles instead of giving them real posts in the government. He also tried to not giving the imperial princes and the relatives of the empress too much power. Emperor Guangwu did continue to use the three posts of the "Three Dukes" (sangong 三公), but these posts were powerless positions. All important information was instead first gathered in the Imperial Secretariat (shangshusheng 尚書省) before forwarded to the emperor.
The position of the Censor-in-chief (yushi dafu 御史大夫), who had to supervise and control the state officials, was also strengthened. The capital officials were controlled by the Metropolitan Commandant (sili xiaowei 司隸校尉), the provinces (zhou 州) by a regional inspector (cishi 刺史). The total number of offials in the capital as well as in the districts (xian 縣) was considerably reduced.
For the restructuring of the economy that had suffered during the long phase of the war against Wang Mang and the peasant rebellions, Emperor Guangwu reintroduced the old tax system of a thirtieth of the harvest and nine times proclaimed an amnesty to private debt slavery. Slaves were so brought back to normal live and would pay taxes and work the fields, and were also better protected against abuse by creditors.
At the same time he dissolved the system of the chief defenders (duwei 都尉) of the commanderies, as defenders had in the past decades freely recruited soldiers from among the peasantry. In the course of time, the situation of the household registers became better, and a higher amount of persons were registered that could also be included in the tax registers.
Although Emperor Guangwu did a lot to ameliorate the lives of the common people, he also depended on the support of the large landowners and the wealthy and influential families (shijia haozu 世家豪族 or haoqiang 豪強). During the process of land registering therefore these families were often treated with great favours and were able to register smaller tracts of land than they really owned.