The peaks of poetry reached by Petőfi and Arany remained inaccessible to other poets during the rest of the 19th century. Hungary, after being defeated in the war of independence of 1848–49, was ruled from Vienna until 1867. External political pressures on Austria and the willingness of Hungarian society to end passive resistance made possible the Settlement (or Compromise) of 1867, which created the Austro-Hungarian Monarchy. The post-1867 industrial boom and Hungary’s fast technological and commercial development produced a mood of complacency that was first broken by László Arany (son of János), whose ironic novel in verse, A délibábok hőse (1873; “The Hero of the Mirages”), is representative of the mood of disillusionment. Another poet, János Vajda, bridged the gap between the romantic populism of Petőfi and fin-de-siècle decadence: a gloomy visionary, with equal propensity for self-pity and self-aggrandizement, he was nevertheless an important innovator in the field of metaphor and poetic imagery.

In 1837 a national theatre was established to produce works of merit, but, with few exceptions, the standard of plays was low. Ede Szigligeti, a prolific playwright, wrote entertaining comedies and created a special genre of plays, the népszinmü, that give an idealized picture of village life but also contain a measure of social criticism. Very different were the plays of Imre Madách, whose masterpiece Az ember tragédiája (1861; The Tragedy of Man) dealt with universal human problems. This poetic drama followed man’s destiny from creation through stages of history into a future of a phalanstery (a Utopian commune) and the ultimate extinction of life. The play was first staged in 1883 and remains a favourite with the Hungarian public.

The first outstanding novelist, Zsigmond Kemény, displayed, in such novels as Zord idő (1862; “Grim Times”), A rajongók (1858–59; “The Fanatics”), and Férj és nő (1852; “Husband and Wife”), a masterly skill in psychological analysis. His characters’ own deeds determined their gloomy ends. Analysis often took the place of action in Kemény’s novels, which were therefore difficult to read and not popular. On the other hand, Mór Jókai was a popular Hungarian novelist, an exceptional storyteller able to evoke any epoch and any milieu. His characters were idealized, and his descriptions tended to be brilliant rather than accurate. Among his numerous works (he published more than 200 books in his lifetime) were historical novels on problems of contemporary society. Az arany ember (1873; “That Golden Man”; Eng. trans., Timár’s Two Worlds) is one of his best novels. Kálmán Mikszáth was also popular; he recorded with keen observation and sly humour the shortcomings of society but, although a politician and a member of parliament, was little concerned with improvement. Though the principal works of Géza Gárdonyi were published early in the 20th century, they belonged to the 19th century. Egri csillagok (1901; “The Stars of Eger”) and A láthatatlan ember (1902; “The Invisible Man”; Eng. trans., Slave of the Huns) were well constructed.

During the 19th century, literary life in Hungary became organized to some extent: the Kisfaludy and Petőfi societies, founded in 1836 and 1876, respectively, were particularly influential, though the authority of the Hungarian Academy, founded in 1825, remained unchallenged. The principal critic of the second half of the century was Pál Gyulai. Literary criticism and the history of Hungarian literature attracted some of the best minds, including Jenő Péterfy and Frigyes Riedl.

The last third of the 19th century in Hungary was an era of literary decline in which writers based their work on social and political ideals that were becoming sterile. The great majority of Hungarian writers came from the nobility and lived as part of the middle class; only at the end of the century did lower-middle-class writers come to the fore. The periodical A hét (“The Week”), founded in 1890 by József Kiss, became the organ of a number of gifted writers, including Zoltán Ambrus and Sándor Bródy.