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During World War I, the Laurin & Klement factory in Mlada Boleslav produced military vehicles, including ambulances, as well as ammunition. In 1918, the former Austro-Hungarian empire, which had included Bohemia, was split into a number of states, and the Republic of Czechoslovakia was declared under president Tomas Masaryk. There was no longer a demand for luxury cars, however; most regions were left impoverished after the war, especially Austria, where 20 percent of Laurin & Klement exports had gone, and the new Bolshevik regime in Russia ended exports there. Taxes on car ownership and petrol in the new republic were also heavy. Laurin & Klement concentrated on making agricultural machinery and buses, though it won a government contract in 1920 to manufacture Lorraine-Dietrich aircraft under licence. The Type S and Type M cars developed pre-war were revived, but as large, expensive vehicles, they did not prove successful; a sportier version of the S, the Type 100, made its debut in 1923, but it was too late to save the company. Other local manufacturers, such as Praga and Tatra, were offering smaller, cheaper models more appropriate to market needs, and Laurin & Klement was effectively finished off as an independent entity in 1924, when a serious fire destroyed its Mlada Boleslav factory. The sparks from the fire were said to be visible as far away as Prague.

Laurin & Klement sold their company to Pilsen-based industrialist Emil Skoda in 1925. Skoda had been making trains, construction components, weapons and steam vehicles, but had no car production facilities, though it had the licence to produce six-cylinder Hispano-Suiza vehicles. The Skoda winged-arrow symbol was already familiar, and this name and badge was applied to the new cars coming from the rebuilt, completely modernised Mlada Boleslav facility. Updated versions of older cars were badged Laurin & Klement-Skoda, whilst the L&K-built Spanish cars - including the limousine used by President Masarky - were badged Skoda-Hispano-Suiza. One of the first all-new models was the Skoda Roadster Type 150, which made its debut at the 1926 Prague Motor Show.

Skoda restructured its assets in 1930, with the Mlada Boleslav factory declared a 100 percent subsidiary of the Skoda Factory Pilsen as part of a drive to increase sales statistics for the combined companies and up overall production. 1931 saw the launch of the 633, the best-selling six-cylinder car of its time. The Depression hit output in 1933, however, with production halved to just over 1600 vehicles over the previous year's output, despite the introduction of the all-new Type 420 Standard. This 20hp, 995cc model had a much lighter, stiffer central framework, a structure which survived into the 1960s, and it then formed the basis of the 418 Popular, the sportier Rapid and larger Favorit. All these sold well once the European economy picked up again, boosted by the Popular's second place in the 1936 Monte Carlo Rally and victories in the 1937 Nairobi-Johannesburg and Belgrade-Athens events, and low prices: the Popular cost roughly the same as a motorcycle and sidecar. There was demand again for luxury cars: the 640 Superb (also launched in 1934) helped Skoda become the best-selling Czech car maker for the first time in 1936, ahead of Tatra and Praga. In 1935, a prototype for a small budget car with an air-cooled, rear-mounted engine - a rather similar layout to the Volkswagen Beetle - was made, though this was not to go into production; instead, the more conventional 995 Popular, "Liduska", became the Czech people's car.

The 1939 occupation of the now Czech-Slovak Republic, reduced in size after the Munich Accord of 1938, put an end to development. The Czech-Slovak Republic was split into two parts, Bohemia-Maehren, absorbed into the German Reich, and Nazi-controlled Slovakia. Skoda was put under the control of the Reichswerke Herman Goering AG and the factory was put to production of all-terrain vehicles - designed by Ferdinand Porsche - as well as aeroplane wings, tractor components, artillery and ammunition. At the end of the war, in May 1945, it was destroyed for the second time in its history by Allied bombing and a subsequent fire.