A new feature of Medieval II is the ability to build guild halls. Spearmen are shown here attempting to beat back a charge launched by mounted knights.ДЄs in other Total War games, in each settlement the faction may construct a number of buildings, each with different functions, such as training troops, upgrading weapons and armour, expanding the economy, increasing the settlement's defenses or strengthening religion. Castles also need less population to be upgraded.ДЄn example of a battle outside a settlement from Medieval II: Total War.

Players may convert a settlement to a different type, although larger cities may not be converted into castles. A small quantity of militia troops, stationed in the city where they have been trained, can be kept for free, without upkeep cost, otherwise required to be paid every turn for every army unit. Cities generate much larger income and are technological centers of a faction, but are more difficult to defend and only have access to militia troops, which are generally inferior to those trained at castles except for a select few unique units. Castles have better defensive capabilities and have access to a larger selection of soldiers, but generate less income, cannot train as many priests as cities, and have no access to higher civilian technologies.

Unlike previous Total War titles, there are two kinds of settlements, each with different advantages and disadvantages: cities and castles. Each faction controls a number of settlements, and must conquer others in order to continue growing.

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