Up until the 1992-1995 Bosnian War, the town was known as Skender Vakuf. After it was captured by Serb nationalist forces in 1992, however, the town was renamed Kneževo by the new authorities. Accordingly, many media outlets continue to refer to the area as Skender Vakuf-Kneževo.

Kneževo is located between the rivers Ugar, Vrbas and Vrbanja and surrounded by the mountain chains of Čemernica, Ranča in the west, Vlašić in the south and Ježica in the north-east. The municipality has an official altitude of 864 metres (2,835 ft), but really ranges from 600 to 1,493 metres (1,969 to 4,898 ft). Kneževo is 50 kilometres (31 mi) southeast of Banja Luka by the M56 motorway.

Neighbouring municipalities are Čelinac (extreme north), Kotor Varoš (east), Travnik, Dobretići, Jajce (south), Mrkonjić Grad and the city of Banja Luka (west). The southern border is defined by the border of the Republika Srpska with the Federation of Bosnia and Herzegovina, the country's other entity. The mountainous region in the south is forested and impracticable; its limestone mountains reach a height of 1,493 metres (4,898 ft).

Today, the Kneževo municipality includes Bastaji, Bekići, Bokani, Borak, Bregovi, Vlatkovići, Golo Brdo, Gornji Korićani, Doline, Donji Korićani, Živinice, Imljani, Javorani, Kneževo, Kobilja, Korićani, Kostići, Milovići, Mokri Lug, Pavlovići, Paunovići, Petrovo Polje, Ravni Sto, Rađići, Ćeleši, Ćukovac, Čarići, Šolaji.

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